Xero extends first-half loss, says it's at a turning point

Xero chief executive Rod Drury. Photo / Hawkes Bay Today

Xero, the online accounting software maker, extended its first-half loss and expects this to be the biggest as it moves towards breaking even next year.

The Wellington-based company reported a net loss of $4.7 million in the six months to Sept. 30, compared to a loss of $3.8 million in the same period a year ago, it said in a statement today.

First-half operating revenue rose to $3.7 million from $1.3 million, and was higher than the $3.4 million earned in the 2010 financial year.

"Taking on the large but fragmented international business market is a significant challenge and does take time," chief executive Rod Drury said. "The initial market assumptions are playing out as expected and Xero continues to execute on its strategy, with revenue growing strongly."

Operating expenses rose 59 per cent to $7.9 million in the six months as the company expanded its head count in New Zealand, Australia and the UK to 101 from 73.

Xero's cash reserve, which is funding the company until it becomes cash-flow positive, fell to $16.6 million in the period from $25.9 million, excluding the $4 million raised when the company tapped PayPal co-founder Peter Thiel.

"Cost levels directly reflect the company's strategy to build a team and platform to exploit the substantial opportunity and compete with Intuit, Sage and MYOB," Drury said.

Xero has 27,000 businesses on its books. In New Zealand, the firm has 1,500 accounting partners, up 63 per cent from the six months ended March 31.

It made its first external investment, acquiring a 16 per cent stake in tax lodgement system developer Max Solutions Ltd. for $200,000.

Shares rose to a new high of $1.82 yesterday, and have risen 11.1 per cent in value this year.