Cash-rich Xero posts net loss

Cash-rich Xero posts net loss

Xero posted a net loss of $1.7 million in the six months to September 30 according to unaudited financial results released last week. While Xero has a cash balance of $12.6 million, it earned just $24,000 from 204 paid subscribers to its online accounting service in this period.

Chief executive Rod Drury says the loss reflects the investment the company, which listed on the New Zealand Stock Exchange in June, has made in building software functionality and sales and marketing capability.

“We’re investing heavily because we want to build Xero up, so of course there are going to be some losses. We have a three-year plan to become a global provider with the first targets being Australia and the UK.”

Xero’s total operating revenue for the six months to September 30 was $194,000. This is made up of the $24,000 received from subscriptions and a $170,000 funding grant it received from New Zealand Trade & Enterprise and the Foundation for Research Science & Technology.

According to the report, Xero had 204 paying customers with 240 organisations and 404 users as at 30 September. It states average revenue per customer for this period was $54.

However, the company earned more from interest on the $12.6 million it has in cash in the bank than from ordinary revenue activities. It earned $319,000 in interest on bank deposits in the reporting period.

Drury says that now Xero has invested, it will focus on marketing to selected vertical industries and establishing broader marketing programmes.

“The channel is always changing with products such as software-plus-services. With our unique accounting software we can help partners in that space. If you consider we have only been publicly listed on the stock exchange for four months, I think we have done a great job of quietly building the company.”

Drury adds that Xero has also invested in staff. It now has 41 employees.

“We needed to get the right staff in all areas of operations, particularly product development and sales and marketing.”

In the preliminary financial statement, Xero indicated that the costs associated with the operations developments to date are in line with forecasts issued in its share offer documents. Its operating costs for suppliers and employees were $2.2m.

Xero was founded in July 2006 by Drury and specialist small business accountant, Hamish Edwards. Drury previously founded Aftermail before selling it to Quest Software for US$45 million in 2005. The company has offices in Wellington, Auckland and Christchurch.

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