Quit US, analyst urges Xero

Rod Drury.

Analysts at Wellington's Woodward Partners have suggested Xero abandon its expensive strategy of chasing growth in the United States and instead focus on consolidating its position in New Zealand, Australia and Britain.

But the online accounting software developer's chief executive, Rod Drury, says the idea makes no sense and the company remains confident it can crack the US market.

Xero shares have fallen around 17 per cent since the firm released numbers last week showing US customer growth had been slower in the six months to September 30 than analysts had been expecting.

It added 4000 clients there during the period, taking the total number of US customers to 22,000.

In a research note, Woodward Partners analysts Nick Lewis and Cahn McKenzie said the additional cost of Xero's plan to take on 500 new staff over the next 12 months could mean its cash reserves - now $171 million - could be wiped out by early 2016.

Drury did not agree, saying Woodward had built too much cost into its model.

The analysts also said Xero faced an expensive, difficult task gaining market share in the US where its major competitor, Intuit, was already "way ahead" of the New Zealand firm.

"Instead, would it not be more prudent for the board to use its remaining cash balance to consolidate [Xero's] relatively stronger market positions in NZ, UK and Australia?" they suggested.

Drury said more than 75 per cent of the US accounting market did not use Intuit's Quickbooks accounting product.

"It's a massive white space market," he said.

"We're just getting started in the US and it will take some time."

Xero shares, which hit a record $45.99 in March, closed down 45c at $17.50 yesterday.