XERO FPO NZ (ASX: XRO) could be the greatest technology company on the ASX yet.
Yes, its share price is down over 60% since peaking at over $40 in early 2014.
Sure, it's still not profitable.
However, in my opinion, these are all superficial facts for the long-term investor. In fact, those who really know Xero and what it's capable of doing will be relishing its low share price and lack of profitability.
Why? In my opinion, Xero's current state of affairs is affording savvy investors the chance to buy into what will become one of the Australia and New Zealand Stock Exchange's – best technology companies.
From Xero to disruption
Xero is a cloud accounting software provider. Everyone knows that much. However, what most investors fail to appreciate is Xero's 'multiple futures'.
For example, a recent report by PricewaterhouseCoopers (one of the world's largest accounting firms) found 44% of current Australian jobs are at "high risk" of being affected by technology in the next 20 years. PwC forecast accounting/bookkeepers and financial/insurance admin workers were most at risk of becoming automated.
After all, if Xero's beautiful software could 'read' your bank statements, automatically print your required tax returns and file your necessary documents, what use is your administration team, payroll officer or bookkeeper? I'm a little hesitant to admit Xero will disrupt the entire accounting profession in the next 20 years, however, it will meaningful change the way almost all small businesses operate – for the better.
Moreover, like Facebook and many others before it, Xero will have an incredible network effect and could become one of the most valuable sources for companies seeking information on businesses (more on this below).
Another example of Xero's excellent product offering comes from the accounting industry itself. Since I'm a shareholder of Xero, I recently received a letter from the company titled, "Change of Auditor". The headline raised an eyebrow or two, but what I read below was very reassuring.
"Xero Limited (NZX/ASX: XRO) (Xero) notifies its shareholders that PricewaterhouseCoopers (PwC) has resigned as external auditor of Xero and its subsidiaries, effective 2 October 2015", the letter read.
"The resignation of PwC as external auditor of Xero and its subsidiaries will enable PwC to recommend Xero's offerings to private businesses." Talk about confirmation bias!
One final vindication of the potential comes from Australia's largest business bank and one of Xero's early backers, National Australia Bank Ltd. (ASX: NAB). At the weekend, Fairfax Press reported that the two companies have teamed up to provide faster approvals for business loans.
Essentially, if you link your NAB platform with Xero, you won't need to scrape together the multitude of documents and statements required to lodge an application for credit.
"For the first time, small businesses can submit published reports, such as P&L and aged debtors, direct from their accounting software to the bank, so NAB can make a faster loan decision," Xero Australia managing director, Chris Ridd, told Fairfax.
Xero, like all seamless technology providers before it, likely stands to receive a commission for every successful small business loan application completed using the software.
Foolish takeaway
Xero is an exciting technology company with many viable — and extremely profitable — ways to grow its business. However, its future is not certain and its shares are volatile, so unless you can handle holding such a company in your share portfolio, it mightn't be for you.
