Hamish Fletcher

Hamish Fletcher is a business reporter for the NZ Herald

Xero shares hit record

Chief executive says $180m capital injection sends a very clear signal to its big US rival.

Rod Drury, chief executive of Xero.  Photo / David White
Rod Drury, chief executive of Xero. Photo / David White

Xero is starting to "come up on the foils and sail away" while its massive US rival is "struggling to move online", chief executive Rod Drury said after announcing the firm had raised $180 million of new capital.

The online-accounting software maker's share price jumped 9.75 per cent to reach a new record high of $19.70 at market close yesterday, which values the company at $2.3 billion by market capitalisation. The Wellington-based company yesterday announced it had issued 9.92 million shares at $18.15 each to New Zealand and US investors.

The $180 million it raised was "money in the tank" for Xero to build its United States-based management team, Drury said. "We find talent follows money and talent follows talent ... it's a massive war chest and it means we can hire the very best people."

The software firm now has $230 million of cash on hand and Drury said the capital sent a "very clear signal" to its big American rival, Intuit, that Xero "can absolutely take the fight to them".

Intuit, which recorded revenue of US$4.2 billion in the year ending July 31, has around 8000 employees compared to the nearly 600 at Xero.

But Drury said "sophisticated investors" had seen that Intuit was "really struggling to move online".

"Intuit's been a desktop company, so it's done lots of little incremental investments to move online. With us appearing in the market, a lot of their strategy now is in reaction to us ... I guess the best analogy is we're starting to come up on the foils and sail away," he said.

"Xero's been well funded for seven years, it takes that amount of time to build an engine of the quality we've built ... the incumbents have been trying to move from a desktop world to an online world and it's incredibly compromised."

As well as hiring its US team, Drury said the $180 million gave Xero a "really long runway" to take a long-term view of growing its business.

"It allows us to broaden our platform out, so if we can keep hiring people there's many companion products which we can put down the pipe to help us grow revenue," he said. "At the moment we've been focusing on growing revenue just by customer acquisition. We're just launching payroll [software] in the US marketplace as we have done in Australia and it actually grows our revenue per customer and there's plenty of other services we can think of as well."

US investors made up $147 million of the capital raising. Existing shareholders Valar Ventures, backed by Facebook billionaire Peter Thiel, and Matrix Capital Management were among the investors involved.

Xero expects operating revenue for the six months to September 30 to exceed $30.3 million, up 84 per cent from the year before.

The number of its paying customers grew to 211,300 as at September 30, up 89 per cent from the same time the year before. In its last annual result, the company posted a net loss of $14.4 million for the year to March 31. This grew from a loss of $7.9 million the year before.


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