Xero smashes through $5b mark - but then comes the hangover

UPDATE: Nov 7: Xero has smashed through the $5 billion mark.

The software company's shares [NZX: XRO] opened up 7.24% to a new high of $40.00, adding around $300 million to its market cap as it hit $5.1 billion in early afternoon trading.

Shares, which opened at $37.30, climbed all the way to $41.50 before tumbling back to $37.20 in under 60 minutes mid-afternoon.

$400 million in market cap disappeared within an hour, underlining that this can be a volatile stock.

Shares kept falling, and closed down 8.85% to $34.00 (for a $4.34 billion market cap).

Xero had no announcements today.

READ ALSO: Behind the scenes at Xero's US beachhead

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Xero passes $4.72 billion market cap

UPDATE / Nov 6: Xero shares were up 11.69% in late trading to a new all-time high of $37.00 - valuing the company at $4.72 billion.

Yesterday, Xero was briefly worth more than Telecom [NZX:TEL]. Today's move puts Xero firmly ahead. 

Afternoon trading saw the online accounting company move ahead of Auckland International Airport ($4.69 billion) to become the second most valuable company on the NZX behind Fletcher Building ($6.64 billion).

Xero made no announcements this morning, or otherwise made news beyond its share price.

The company did perhaps benefit from First NZ Capital initiating coverage and releasing its first research note this morning. First NZ is more bullish than Forsyth Barr (below), setting a 12-month target price of $45.70.

The broker sees potential for Xero to list on the Nasdaq, and says if it does it could become a $10 billion company within five years. First NZ says it's positive on the stock but like ForBarr cautions that it is a speculative play.

 First NZ reseracher James Schofield tells NBR his company has seen increasing interest from offshore buyers this week, particularly from the US and Asia.

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Xero passes $4 billion market cap

UPDATE / Nov 5: Xero shares [NZX: XRO] rose 11.18% in midday trading to hit a new high of $33.50 - sending the cloud accounting software company past a new market cap milestone of $4.27 billion - edging it ahead of Telecom as NZ's largest listed technology company.

Telecom [NZX:TEL], which was down 0.85% late in the session for a market cap of $4.24 billion - a valuation underpinned by $4.2 billion revenue and $236 million net profit iin its 2013 financial year.

By the session's close, Telecom had nosed ahead.

There was no major news for the company today. But it would not have hurt that Mr Drury posed with Intuit CEO Brad Smith at a trade show in Las Vegas during a social chat. Analysts tell NBR the US market is the key to Xero justifying its heady stock price - and Intuit, which holds a near-monopoly in personal and small business accounting with its Quicken and QuickBooks products, is the company standing in its way. The question is whether Intuit will rollover, push back hard, or buy Xero.

Loss-making Xero, which says its monthly subscriptions imply annual revenue of $70 million  has been on a tear since October 14 when it announced it has issued new shares to raise $180 million in new capital - most of it from re-upping US investors.

Forsyth Barr (the only major brokerage covering the stock) upped its rating from "reduce" to "hold" with the mid-October capital raising,and increased its 12-month target price by 39% to $20.30. 

Analyst Andrew Harvey-Green says evidence points to Xero being successful in the US, but the jury is still out on whether it will successful enough to justify its heady valuation. ForBarr describes the stock as speculative.

ckeall@nbr.co.nz

Follow @ChrisKeall