Is Myob Group Ltd a buy at this share price?

The shares of software accounting company Myob Group Ltd (ASX: MYO) started the day strongly and in early trade were almost 4% higher to $3.59 following the release of its strategic update to the market.

Since then though its shares have given back those early gains and are just about flat as investors absorb today’s presentation.

Earlier this year MYOB revealed that it had undergone a significant transformation in order to reflect changes in the software accounting industry.

Part of that strategy was to attract new clients to its cloud-based software subscription offering, as opposed to its desktop licensed software. MYOB has started to deliver on this.

In the October quarter the company had 90% of new small business DIY clients opting for an online subscription. This was an increase from 83% in the June quarter and means the company is heading in the right direction now in my opinion.

Online subscriptions are definitely the way forward as far as I’m concerned. The ability to upsell platform modules to online subscribers will be a key driver of growth in the future, as well as a way of differentiating itself from competitors Reckon Limited (ASX: RKN), XERO FPO NZX (ASX: XRO), and Intuit’s QuickBooks.

Although it is making progress in online subscriptions, it still has a long way to go. In its half-year results the company reported just over 16% of its customers were using its online service, compared to approximately 31% using paid desktop services. The remainder are non-paying desktop users confirmed via an anti-piracy “pinging” mechanism.

According to today’s release the company is optimistic that the implementation of its strategy is working and sees a lot of opportunity for growth.

For the rest of the year management expects revenue growth to be in line with historic trends and for its earnings before interest, tax, depreciation, and amortisation margin to be in the range of 45% to 50%.

Whilst MYOB could be a solid addition to a portfolio in the long-term, I have a preference for Xero. I believe its product is the best of the bunch and expect it to outperform its rivals over the next few years thanks to growth in the US market.

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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. 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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