The Xero Limited (ASX:XRO) share price is up around 1.6% at the time of writing. It has regained most of the lost ground from yesterday's share price fall.
Shares of Australia's most popular technology businesses like WiseTech Global Ltd (ASX: WTC), Appen Ltd (ASX: APX), Altium Limited (ASX: ALU), Afterpay Touch Group Ltd (ASX: APT) and Xero tend to follow the short-term price movements from the US' FAANG group of businesses.
Overnight we saw, for example, the Apple share price go up nearly 0.7%, Microsoft rose by 2.6% and Facebook shares went up 3.2%. This has given the Australian WAAAX shares a boost.
The market is definitely more volatile.
However, it's also true that many growth shares have seen their valuations fall since reporting season. The Xero share price is down by 28% since the end of reporting season largely due to rising interest rates in the US and the troublesome trade war.
But, there's plenty to be positive about. During the past year the Xero share price is still up by 35%, meaning it has soundly beaten the market.
Xero has been the cloud accounting leader in Australia and New Zealand for some time now, but it has recently taken steps that could significantly improve the growth rates in the US and UK too.
One of the key problems for the US market is that all the different states have different payroll laws. It's not like New Zealand or Australia where everything is essentially the same in different cities. A strategic payroll partnership with Gusto which should allow Xero to potentially provide payroll services to every small business in America.
In the UK the acquisition of Instafile will allow UK accountants to directly file tax returns through linking with Xero data. Having full accounting & tax functionality is one of the main reasons why Xero has resonated with Australian accountants so much. Accountants are a great source of marketing for Xero.
Xero recently reported in its half year report that its annualised monthly recurring revenue had increased by 40% to NZ$589.1 million and added another 193,000 subscribers.
Is Xero a buy?
I think Xero is one of the highest-quality businesses on the ASX. However, it's definitely not cheap even with the major fall in the share price – it's still trading at more than 9x annualised revenue. Long-term investors will likely do well at this price, but it may fall further, so there might be better ASX options to buy at the moment.
