August was a great month for the Xero (ASX:XRO) share price

It was another great month for this market darling…

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The Xero Limited (ASX: XRO) share price was on form again in August.

During the month, the cloud-based accounting platform provider’s shares rose 8.2% to $151.82.

This means the Xero share price is now trading within sight of its record high of $157.99.

Why did the Xero share price outperform in August?

The Xero share price outperformance in August appears to have been driven by a positive reaction to the launch of its app store.

Last month the company 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.

This App Store has a similar model to the Apple App Store and the Google Play Store. It charges a 15% fee for app subscriptions purchased through it store.

What was the reaction?

The team at Goldman Sachs were pleased with the move. They have long spoken about the significant growth opportunity the company has if it can successfully monetise its app ecosystem.

As a result, the broker has retained its buy rating and $165.00 price target.

Based on the latest Xero share price, this implies potential upside of 8.7% over the next 12 months.

What did the broker say?

Goldman said: “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.

This latest gain means the Xero share price is now up 55% over the last 12 months. However, Goldman appears to believe there’s still more to come.

Should you invest $1,000 in Xero right now?

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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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