Xero: Update

Last year in August 2015, I published a review on Xero.

Today, Xero published its half yearly, so I thought it will be interesting to update our figures. The following table summarises the salient metrics:

	2014	2015	2016HY	2016F
Revenue	143m	207m	137m	300m
COGS	30%	24%	25%
R & D	50%	48%	42%
General	20%	15%	14%
Marketing	75%	72%	62%
Total	175%	159%	143%

The figures are certainly headed in the right direction. Pleasingly cash burn has reduced to $13.4m in the last half, with $137m left in the bank, implying a steady runrate of 5 years. 

EDIT: 7 November 2016, cash burn is actually $45.8m. $13.4m is cash burn from operations, with the balance classified as investing cash outflow. However, the company's presentation materials emphasised $13.4m rather than real cash burn of $45.8m. Instead of a steady runrate of 5 years stated above based on $13.4m, the runrate is actually only 1.5 years.  This is the problem with promotional companies, and I should have been much more careful in scrutinising the figures.

The current market cap is roughly NZ$2.3 billion. Share price is up roughly 10% since my August review, and given growth rates of 50% in actual financial performance, has resulted in a narrowing of the gap between valuation and earnings expectation. However, in my view, the share price is still incorporating very optimistic assumptions of growth and eventual margins. In fairness, the probability of these optimistic assumptions eventuating have increased since last year.