Shares in cloud accounting company XERO FPO NZX (ASX: XRO) have been rocked 5.4% in the first wave of ‘Brexit’ selling, well above the 3% fall of the S&P/ASX 200.

It was also way higher than falls in similar companies including MYOB Group Ltd (ASX: MYO), which fell 2.9% and Reckon Limited (ASX: RKN), which dipped just 1.6%.

Why Xero got hit

Xero has a moderate exposure to the U.K. economy, and the potential implications of ‘Brexit’ could hit the company in several ways.

The U.K. makes up around 25% of Xero’s 717,000 subscribers, and 18% of revenue in the 2016 financial year, so straight away we know there is going to be a noticeable impact of the weaker U.K. pound against the New Zealand dollar, which Xero reports in. The pound dropped almost 8% against the NZD which I think is fair to call a right bollocking.

The second concern is the widely held view that the U.K. could now be headed for a recession if businesses go into lockdown and stop spending and investing while a deal gets done to sort out the country’s future.

A recession has the potential to slow Xero’s subscriber growth in the U.K. which was a standout 60% in 2015. Given Xero targets small and medium companies, less spending and fewer new business ventures could increase competition for signing up existing companies, potentially raising the cost of winning new subscribers.

Xero’s U.K. exposure explains why its shares were hit a lot harder than MYOB Group Ltd which has a sole focus on Australia and New Zealand.

Should you buy?

It’s easy to see why investors are nervous of Xero’s exposure to the U.K. and the potential impact on growth going forward.

They are legitimate concerns and could impact Xero’s share price further if markets remain volatile in the weeks ahead.

However in my view the engine driving the company’s global prospects still runs hot in growing the brand and generating significant reoccurring revenue. I especially like Xero’s long-term potential, so I will pounce if shares continue to weaken.

If you prefer quality post-brexit dividend shares, then I would recommend this top dividend share instead. A strong yield and potential share price gains make this a great investment idea in my opinion.

Our Top Dividend Stock for 2016

Our resident dividend expert names his Top Dividend Share for 2016. Not only are the shares dirt cheap, the company is trading on a fat fully franked dividend yield. Simply click here to gain access to this comprehensive FREE investment report, including the name of this fast growing ASX dividend share. No credit card required!

HOT OFF THE PRESSES: Motley Fool’s #1 Dividend Pick for 2017!

With its shares up 155% in just the last five years, this ‘under the radar’ consumer favourite is both a hot growth stock AND our expert’s #1 dividend pick for 2017. Now we’re pulling back the curtain for you... And all you have to do to discover the name, code and a full analysis is enter your email below!

Simply enter your email now to receive your copy of our brand-new FREE report, “The Motley Fool’s Top Dividend Stock for 2017.”

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our https://www.fool.com.au/financial-services-guide">Financial Services Guide (FSG) for more information.

Motley Fool contributor Regan Pearson 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.