Xero becomes billion dollar company

Rod Drury, founder of Xero. Photo / Mark Mitchell

Xero, Wellington-based cloud accounting software firm, has become New Zealand's latest billion dollar company after its shares climbed to a new record today.

The stock rose 5.7 per cent to $8.60, giving the software developer a market capitalisation of $1.01 billion and putting Xero in the company of 17 other local issuers on the stock exchange. That's about 21 times Xero's implied annualised sales of $48 million from its 135,000 customers.

"It's not over-priced at these levels," said Andrew Harvey-Green, analyst at Forsyth Barr. "There's a reasonable amount of expectation built into the share price, which requires a degree of success in all its jurisdictions."

Harvey-Green has a 'hold' recommendation on the stock. There was no real reason for the spike in today's price, though the stock "does go on little runs from time to time," he said.

Last month chief executive Rod Drury said this year was looking "very positive" as it made a bolder claim for business across the Tasman, grabbing 5,000 Australian customers since September.

Last year, Drury, co-founder Hamish Edwards and director Craig Winkler sold down part of their stakes in Xero to US tech investors Valar Ventures and Matrix Capital Management, which also injected $60 million of new capital.

The capital raising left Xero flush with cash to chase sales, and it had $85 million at the end of December according to cash flow statements lodged with the ASX.

The company has yet to turn a profit as it chases sales growth, targeting 1 million customers in a drive to capture global market share for its online, cloud-based business system.