KEY POINTS:
Rod Drury's internet start-up Xero, which listed on the NZX in March in a $15 million IPO, has just put out its preliminary results for the six months to September 30.
As was widely expected it reported a loss - of $1.725 million. Revenue, derived from the monthly fees Xero charges customers to receive the service was just $24,000. Operating revenue overall was $194,000, while operating expenses were $2.23 million.
Xero makes accounting software that's available as so-called software as a service (SaaS). You don't download any software or install anything from a disc - everything is available through a web browser and is hosted on Xero's servers.
Xero says it has signed up 204 paying customers and average revenue per customer reported for the period was $54. It's obvious them that Xero has a lot of ramping up to do in terms of getting customers on board. Xero advised in its six month report:
"Xero's initial focus on features requested by accountants means some planned functionality in the product roadmap that provide opportunities for increased customer revenue have not yet been released. Therefore planned average per customer revenue was lower than planned for the period."
Drury has repeatedly said that there wouldn't be much revenue to report in the first six month period - he's spent the time since launch getting banks and accountants onboard, developing the software and getting his team in place. Meanwhile the share price has hovered in the 75-85c band, below the issue price of $1.
Securing integration with the banks, so that financial transactions from customers bank accounts can be automatically imported directly into Xero is crucial to its success and Xero has done well to get the ASB, National Bank, ANZ, Kiwibank and the BNZ onboard.
Doing this in overseas markets will be much more complicated and probably take much longer given the greater complexity of the banking sectors in places like Britain, the US and Australia.
Xero reported that 52 accounting partners are onboard to support the software and 95 accounting firms have been trained in it. Again, the support of accountants is crucial as the software is designed to improve the interaction between businesses and their accountants and advisors.
Xero seems to be making all the right moves - it has won stacks of awards for its products and leadership and is keeping costs in line with forecasts. It's spending $1.2 million developing its business in the UK and Australia in the current financial year. The idea is that by the time Xero has a reasonable user base in New Zealand it will have laid the groundwork for rollout in those bigger, more lucrative markets.
The telling period will be around the quarter leading up to March 31 - the end of the financial year. This is when it is easiest for companies to jump into a new accounting system. Xero's first full-year result then will be much more illuminating.
The local tech blogosphere:
Aardvark on roll-your-own mobile phones.
