Xero (ASX:XRO) share price rises on app store news and broker note

Xero shares are pushing higher on Thursday…

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The Xero Limited (ASX: XRO) share price has been a positive performer on Thursday morning.

At the time of writing, the cloud accounting platform provider’s shares are up 2% to $148.70.

Why is the Xero share price pushing higher?

The catalyst for the rise in the Xero share price on Thursday appears to have been a positive broker note out of Goldman Sachs.

According to the note, the broker has retained its buy rating and $165.00 price target on the company’s shares.

Based on the current Xero share price, this implies potential upside of 11% over the next 12 months.

What did the broker say?

Goldman notes that Xero has launched the Xero App Store across the ANZ and UK markets. This is part of the company’s plan to streamline and simplify access to the ~1,000 apps currently available in its ecosystem.

Much like the Apple App Store and Google Play Store, this change has seen a 15% app store fee introduced for app subscriptions purchased through it store. This means that from today, new apps will incur these charges, while existing applications will be migrated onto the new terms over the next 12 months. App store partners that sell directly to Xero customers through other channels will not be required to pay the 15% app store fee.

A positive step

Goldman Sachs has previously stated that it is bullish on the Xero share price partly due to its belief that the monetisation of its app ecosystem has the potential to underpin very strong revenue growth over the next decade and beyond. As a result, the broker sees this move as a positive step.

It commented: “We see this as a positive step from Xero, which is increasingly focused on monetizing its strong market positions within the ANZ and UK markets, with the incremental revenues used to accelerate its ongoing global expansion.”

“We previously outlined our belief that a 10-15% app-store fee was possible for Xero, given this would provide consistency across the Xero app developers to incentivize continued investment, while being comparable to a number of digital marketplaces globally who have app fees ranging from 12% (Epic Games) to 30% (Apple, Google, Steam, etc).”

“Although the quantum of app attachment rates is uncertain, we estimated that a 15% app store fee could open up an incremental NZ$1.4bn of TAM, with these earnings likely to be 100% margin,” it added.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and has recommended Xero. The Motley Fool Australia owns shares of and has recommended Xero. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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