XERO FPO NZ innovates: But will it dominate?

I'm expecting XERO FPO NZ (ASX:XRO) to extend its moat in the cloud space, and here's why.

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Fairfax media reported overnight that New Zealand cloud computing company XERO FPO NZ (ASX: XRO) has signed a strategic partnership with US cloud storage giant Dropbox.

Just the latest in a long list of innovations, the partnership will expand Xero's online presence and reflects the kind of approach that saw Xero declared the world's 'Most Innovative Company' by Forbes in 2014 and 2015.

Dropbox allows users to store files online and subsequently access them from any computer with internet access and share them with other users. It's a logical fit for Xero, and the partnership will allow users to import information – like a folder of receipts and expenses – from Dropbox.

Importantly, the partnership also allows Xero exposure to businesses that are already using Dropbox. I don't believe this will be particularly relevant in the ANZ region where Xero is a major player, but it could become increasingly important for attracting and retaining new customers overseas.

Combined with some other bright ideas announced during the 'Xerocon' earlier this month, Xero looks to be adding substantially to its product offering and I think it is becoming apparent that the company possesses an expanding, not shrinking moat (at least in the online sector) over its competitors Myob Group Ltd (ASX: MYO) and Reckon Limited (ASX: RKN).

In addition to the partnership with Dropbox, Xero has also announced:

  • A partnership with Google, allowing users to create invoices and quotes from Gmail
  • An initiative with Apple to bring new solutions to the iOS platform for mobile devices like the iPhone, iPad, and Apple Watch
  • Xero Me for iOS, making it easier for employees to access information like pay slips and request time off
  • Ongoing additions and ease-of-use improvements to the Xero accounting and payroll software

Readers can see how Xero is expanding its offering into all the little niches associated with business, with the ultimate aim of being a one-stop-shop for everything small to medium-sized business related.

Shares are again trading close to their lowest point all year, and despite a continued lack of profitability I think a company with an expanding moat that has grown subscribers tenfold in four years is a solid buying opportunity.

Motley Fool contributor Sean O'Neill owns shares of Xero. The Motley Fool Australia owns shares of Xero. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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