When Myob Group Ltd (ASX: MYO) made its highly anticipated return to the ASX earlier this month, we warned that it was unlikely to represent a great buying opportunity particularly if it debuted towards the upper end of its $3 to $4 indicative price range. Indeed, this has held true so far.
Since having debuted at $3.91 just over three weeks ago, the stock has shed more than 12% of its value, including a 4.5% decline today, to trade at just $3.43. MYOB is one of the most well established players in the accounting software industry, so it is hard to argue with that fact that it is a reasonable business.
But even had the stock debuted closer to the $3 mark, it still would have been difficult to justify purchasing the shares given the competitive forces within the industry, including Reckon Limited (ASX: RKN) and, more specifically, XERO FPO NZ (ASX: XRO).
Although it has not been around for as long as MYOB, the New Zealand-based Xero is quickly lapping up market share, particularly in the Australia and New Zealand regions. Moreover, the ease of use and user-friendly interfaces associated with its products is also allowing it to grow in Europe and the United States.
In fact, Xero's CEO, Rod Drury, openly criticised some of the figures provided in MYOB's prospectus, suggesting that the numbers did not provide prospective investors with enough information regarding MYOB's actual strength within the market. T
he fact that Xero has clearly become the dominant force in New Zealand may be why the market has responded negatively to MYOB's announcement today.
The company said that it has signed an agreement to acquire the New Zealand-based Ace Payroll Plus Limited for a purchase price of NZ$14 million (A$13.1 million), in order to strengthen its position in the payroll software segment within the country.
This move is consistent with MYOB's growth strategy of investing in product innovation to enable it to offer a differentiated portfolio of products, whilst also allowing it to increase the average revenue per paying user in New Zealand.
However, it did say that the overlap between the two companies won't have a significant impact on the number of paying users, which is where a lot of MYOB's growth needs to come from.
Although MYOB's shares have fallen considerably since making their debut earlier this month, it still does not represent a compelling buy. Indeed, although Xero is yet to make a profit, it is spending money strategically to ensure it remains the dominant force in the industry moving forward, and certainly appears to be the better bet for your money today.
