Xero talks up possible US listing as Drury updates on customers, forecasts revenue at AGM

A US listing appears seems to be on the cards for Xero.

In presentation to the company's annual meeting, CEO Rod Drury said the company, which reported $70.1 million revenue for FY2014 recently hit the $100 million annualised revenue mark, is forecasting an 80% lift in revenue for FY2015 on a constant currency basis, implying $126 million turnover.

"During the year we will pass through US$100m in annualised committed monthly revenue positioning us for a US listing when the timing is deemed right," the presentation says. 

That specific US dollar figure is significant because Mr Drury has previously told NBR that Xero has taken advice on a possible Nasdaq listing, and was told that it would make financial sense once revenue hit $US100 million.

The recent appointment of ex-pat Chris Liddell as Xero chairman has also been seen as a sign of a possible US listing. Woodward Partners Equities' Nick Lewis earlier told NBR the New York-based Mr Liddell is well-connected to major investors in the US and Europe from his time leading GM's post-bankruptcy IPO.

Profit-less Xero's revenue to market cap multiple is often remarked on.

But one slide in this afternoon's presentation — perhaps aimed at selling existing shareholders on the merits of a Nasdaq listing, or heebeejees over Xero's market cap, or both — points out Xero's value ($2.7 billion in US dollar terms) is not outlandish next to various listed US companies in the software-as-a-service (SaaS) space including Workday ($US15 billion) and Salesforce ($US23 billion), and that Xero's revenue is growing at a similar pace to their early years.

Profit-less Workday is forecasting $US750 million revenue next year; Salesforce lost $US232 million on revenue of just over $US4 billion in the 12 months to December.

Another SaaS company name-checked in the presentation, Netsuite (market cap: $US8 billion), lost $US70 million last year on $US414 million revenue. It's easy to see why Mr Drury might want to rub shoulders with such company, and in a market where dizzying revenue-to-market cap multiples are the norm for cloud contenders.

Customer number update
One possible wrinkle: Nasaq investors could have a could have a special focus on Xero's progress in North America.

The company most recently updated on paying customers on May 22, when it said it had 300,000.

Today, Mr Drury reported a new total: 334,000.

The company says it will gun for growth over profit until it hits the 1 million customer mark.

This morning, Mr Drury hinted at more detail on customer numbers amid controversy over allegedly slow progress in the key North American market, where Intuit is dominating both offline and cloud sales in its home market  (Intuit's most recent quarterly report says it has 624,000 QuickBooks Online customers, the vast majority in the US and Canada, and around 5 million total.).

But if a new Xero US customer number is being delivered, it's not in this afternoon's main presentation, which reiterates the regional breakdown delivered at the May 22/284,000 customer announcement, including the previously reported 18,000 for North America.

"The success of the company's going to be international, it's not just the US," Mr Liddell said after the meeting. "In terms of the US, it's just a great product. It's not going to happen immediately and, sure, Intuit's a formidable, large company in the US, but it's important to recognise that of something like 30 or 40 million small, medium businesses in the US, Intuit's customer base is five million. 

"There's 35 million who do something else, whether it's Excel spreadsheets or pieces or paper or localised software, so it's not only competing with Intuit, you're competing for people who've never had software before."

Shares [NZX:XRO] closed down 1.38% to $23.58 against a broader market rise of 0.30%.

RAW DATA: AGM presentation (PDF)