Will the Xero share price hit $100 one day?

Xero Limited (ASX:XRO) is due to report interim results in November.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Xero Limited (ASX: XRO) share price is up 4.2% to a record $67.80 this afternoon as tech shares globally catch a bid on the back of renewed hopes the US and China might reach a deal in their trade dispute.

Yesterday, Xero concluded its #XeroconBrisbane conference that is designed to provide its accountant clients, partners, or other stakeholders with updates on its product developments, among other initiatives. 

Xero didn't have any headline making news out of #XeroconBrisbane, but it's clear Rod Drury's original mission to 'rewire the small business economy' is ongoing and its market-leading online-only product (alongside Intuit's Quickbooks) is helping it take market share worldwide.

I cannot think of another company on the S&P/ ASX200 (ASX: XJO 0r wider All Ordinaries Index (ASX: XAO) that is harnessing the growth of the digital economy better than Xero.

Moreover, its mission to take small business accounting online and connected via a widening financial web of partners, intermediaries, and banks could still develop strongly over the next 5 years.

Let's take the UK tax office's (HMRC) recent directive that tax submissions should be all online, which saw Xero subscriptions spike over the period to May 31 2019.

The directive is for all VAT (GST equivalent) and income tax submission across individuals, the self-employed, and small businesses, with a surprisingly large percentage of submissions still offline.

The UK's deadline to comply is not until at least April 2020, but other tax offices worldwide are also likely to push to digitise tax returns and small business accounting over the years ahead.

This looks a powerful tailwind for Xero and assuming recent growth rates continue it probably already has around 2 million subscribers globally.

Another point worth noting is that Xero for now is still largely focused on winning global market share by improving its product offering and keeping pricing competitive in order to avoid being undercut by competitors like Quickbooks or Myob

This is notable as Xero probably has a fair bit of pricing power once it's integrated into a small businesses book keeping methodology and price rises over say the next 3 to 5 years will likely see profits rocket.

I've covered the attractive economics of the software-as-a-service business model it operates plenty of times before in prior articles.

If Xero can deliver on its potential the shares may still be cheap, as I expect the digital economy's growth will heavily outpace the wider economy's growth in the decade ahead. 

Tom Richardson owns shares of Xero.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Intuit. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Xero. The Motley Fool Australia has no position in any of the stocks mentioned. 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 Scott Phillips.

More on Share Market News

Stock market chart in green with a rising arrow symbolising a rising share price.
Share Gainers

Here are the top 10 ASX 200 shares today

It was a massive day for the ASX 200, with a new all-time high recorded.

Read more »

A man sits thoughtfully on the couch with a laptop on his lap.
Technology Shares

This ASX tech stock rocketed 60% in March! Can it keep on delivering?

After soaring in March, the ASX tech stock is now up 169% since this time last year.

Read more »

Broker Notes

Brokers name 3 ASX shares to buy now

Here's why brokers are feeling bullish about these three shares this week.

Read more »

A young man clasps his hand to his head with his eyes closed and a pained expression on his face as he clasps a laptop computer in front of him, seemingly learning of bad news or a poor investment.
Share Fallers

Why Burgundy Diamond Mines, Clarity Pharmaceuticals, EML, and Zip are sinking today

These ASX shares are ending the week in the red. But why?

Read more »

A young women pumps her fists in excitement after seeing some good news on her laptop.
Share Gainers

Why Mesoblast, Newmont, Pilbara Minerals, and Platinum shares are jumping

These ASX shares are ending the week strongly. But why?

Read more »

a young boy dressed up in a business suit and tie has a cute grin and holds two fingers up.
Opinions

2 of my top ASX 200 shares to consider buying before April

I would happily exchange dollars for these two shares right now.

Read more »

Father in the ocean with his daughters, symbolising passive income.
Dividend Investing

I'd spend $8k on these ASX 200 shares today to target a $6,102 annual passive income

I believe these ASX 200 shares will continue rewarding passive income investors for years to come.

Read more »

Three businesspeople leap high with the CBD in the background.
Share Market News

Boom! ASX 200 blasts to new record highs

ASX 200 investors just sent the benchmark index into uncharted territory.

Read more »