Is the Xero Limited (ASX: XRO) share price a buy because of the coronavirus share market volatility?
Since 21 February 2020 the Xero share price is down by 26.6%, which isn't quite as bad as some other of those high growth shares, but it's still pretty painful.
Why Xero could be a solid long-term pick
One of the best things about Xero is that it's a software as a service (SaaS) business. These SaaS businesses are attractive because they generate recurring revenue. We'll see how much of that 'SaaS' revenue is actually recurring over the coming months for most companies, but I think for Xero it genuinely will be recurring.
Xero will continue to be paid by its business customers if they want to keep using the software. Financials will need to keep being done. Tax returns and BAS will still need lodging.
Whilst this period will be painful for some businesses, most of them will survive and they will (by default) continue using Xero.
Indeed, I think the businesses that use Xero are more likely to be forward-thinking and be able to get through this period.
Businesses may keep switching
A lot of the subscribers signing up to Xero are businesses that are wanting a better provider.
One of the biggest advantages of Xero is that it's cloud based. You can do the accounting, bookkeeping and so on from anywhere. Being able to do the accounting from anywhere is an attractive offering in this current environment.
Before this coronavirus outbreak, Xero was seeing a large increase in subscriber numbers and I think subscriber numbers could continue to rise even during this difficult time.
Is the Xero share price a buy?
Xero is hard to value because it deliberately isn't making a profit. It prefers to re-invest any excess profit back into more growth. But its gross profit margin continues to rise.
Out of all of the tech shares, Xero is one of the ones I'd be most happy to buy during this time. The lower price is nice and record low interest rates means that shares will look really attractive to people when the worst is over. Xero is a great business, but I've got my eyes on other growth shares.
