Investments put Xero at NZ$24.5m half-year net loss

Xero has seen strong growth across its first three initial markets, and now plans to work on accelerating growth in the US after the company 'did not execute to plan'.
Written by Aimee Chanthadavong, Contributor

Xero has blamed its investment in product development, sales, and marketing for its reported first-half net loss.

The New Zealand-based cloud accounting software provider has reported a NZ$24.5 million net loss after tax for the six months ending September 30, an increase from the NZ$17.1 million that was reported during the same period last year.

Despite this, the company boosted staff numbers by 70 percent to 933 during the September 2013 and September 2014 period. With this capacity now in place, the company said it expects its staff growth rate to slow and to see "continued scaling" of its customer base that will help push margins higher in the future.

Xero also increased the amount of paying customers globally by 76 percent to 371,000 from 211,000 recorded during the same period last year. In turn, subscription revenue increased by 85 percent to NZ$52 million, compared to NZ$28.1 million for the same period last year.

Looking at a country-by-country basis, the company reported that New Zealand, Australia, and the United Kingdom are seeing strong growth. For instance, in the UK, Xero doubled its customer base for the sixth consecutive year, while in New Zealand, the company said it conducted NZ$65 billion worth of transactions on the platform over the last 12 months.

"We're thrilled at the growth we're achieving in our initial three markets, and are now focused on execution in the important US market and are making good progress on building our leadership team there," CEO Rod Drury said. "Our investment over the last year, combined with our clean cloud-first platform, will allow us to further increase the rate of innovation. It will be an exciting next few years for small businesses and accountants."

Meanwhile, in the US, the company was able to lift the amount of paying customers by 120 percent, from 10,000 to 22,000. However, the company said: "Xero did not execute to plan. Key leadership changes are being made in the region, and Xero expects to accelerate growth over future periods."

Some of the staff changes that Xero made in the region include the relocation of Ross Jenkins, chief financial officer, to the US, and the appointment of three senior executives: John Forrester as VP of US marketing; James Maiocco as GM of business and corporate development for the US and the UK; and Angus Norton as senior VP and chief product officer. Further appointments are expected to be announced over the coming months, the company said.

Additionally, Xero said the online channel, Xero.com, will remain a key focus for the company to reach "large, unserved markets of millions of small businesses not benefiting from accounting software" in the US.

Looking forward, Xero expects the release of payroll in the UK, the US, and New Zealand will drive increased revenue per user in 2015. At the same time, the company will also make incremental steps into the big data and analytics market with its soon-to-be-launched "Big Data for Small Business" Xero product.

"This is just the first step in how we'll be looking to use big data from our global accounting platform to put small businesses in control and growth," Drury said.

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