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.
