XERO FPO NZ reaches key milestone: Is it a bargain?

Cloud computing accounting software provider, XERO FPO NZ (ASX: XRO), today announced it has surpassed 200,000 Australian customers as it continues on its impressive growth trajectory.

Shares of the New Zealand-based company have been on a volatile ride since it listed on the ASX in late 2012. Its shares soared to almost $42 in early 2014, but have retreated to $23.60 today.

However, Xero’s operational growth has been impressive.

For example, here in Australia, the company has almost doubled its paying customer base since 31 March 2014, when it had 109,000 customers.

Chris Ridd, Xero Australia’s Managing Director said, “We believe we are now truly in the early majority phase of adoption.”

“We expect to see significantly more small businesses upgrade from traditional accounting products in the coming months and years,” Mr Ridd said.

Xero is currently expanding across New Zealand, Australia, the USA and UK.

After a slow start in the huge U.S. market, Xero recently announced the appointment of experienced key management personnel and welcomed a US$100 million cash injection from Silicon Valley-based venture capital firm, Accel Partners.

Motley Fool Pro Investment Analyst, Matt Joass, showed in this article that Xero is already attracting more interest from internet users (according to Google Trends) than key rivals MYOB, Quicken, Quickbooks and Reckon Limited (ASX: RKN) in both Australia and New Zealand.

Moreover, in the New Zealand market, Xero already counts over 26% of all small businesses as customers.

Is it time to buy Xero shares?

Xero has an innovative accounting product which has proven its ability to attract and retain customers in its home country. Although it has not yet posted a profit, it has a strong balance sheet and its bottom line will likely benefit dramatically from ongoing network effects, as the marginal cost per additional customer falls.

In my opinion, at today’s prices, Xero is a worthy higher-risk investment for your share portfolio.

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Motley Fool Contributor Owen Raszkiewicz owns shares of Xero. The Motley Fool owns shares of Xero. You can follow Owen on Twitter @ASXinvest.

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 policyThis article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.”

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