Could the Xero (ASX:XRO) share price reach $165 by the end of 2021?

Is the Xero share price heading higher from here?

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The Xero Limited (ASX: XRO) share price has returned to form this week and has been charging higher.

The cloud accounting platform provider’s shares are currently up almost 4% since last Friday’s close at $144.52.

Could the Xero share price keep rising to $165.00 by the end of 2021?

What happens between now and the end of 2021 for the Xero share price will depend a lot on its half year results next month, but one leading broker appears to see potential for its shares to reach $165.00 in the near future.

According to a recent note out of Goldman Sachs, its analysts have a buy rating and $165.00 price target.

Based on the current Xero share price, this implies potential upside of 14% for investors.

Why is Goldman positive on Xero?

Most recently the broker has been looking at an update from one of its key rivals and saw a number of positives. That rival is Intuit, which is the company behind the QuickBooks accounting platform.

Goldman notes that QuickBooks grew its international subscribers by 11% or ~160k in FY 2021 and US subscribers by 18%. The former was notably slower than Xero’s growth, which the broker feels bodes well for its global expansion.

It commented: “While we acknowledge the y/e timing impacts between Intuit/Xero, this subscriber performance was significantly below vs. Xero (+412k ex. NA). Therefore, we see this update as a strong positive for Xero in its global traction, noting a key pillar of our positive thesis is the ability to leverage its best in class product to expand in new geographies (NZ$18bn Cloud Accounting Expansion TAM).”

Another positive was Intuit’s update on the QuickBooks ecosystem. Goldman has previously stated how it believes Xero has a massive opportunity to monetise its own app ecosystem, so takes comfort from Intuit’s update.

It explained: “In FY21 40% of QBO customers use an ecosystem service or 3rd party app (vs. 36% in FY20) with the company generating a much higher share of platform revenues (i.e. Payroll, Time tracking etc., with Online Services c.38% of FY21 QBO revenues) vs. Xero (7% of FY21 revenues ex Hubdoc).”

Overall, the broker was happy with what it heard and remains very positive on the Xero share price.

It concluded: “We re-iterate our Buy on Xero (12m TP of A$165), noting Xero has closed its premium vs. the ASX InfoTech index to 140% vs. 2 year average 179% (12mf EV/Sales), and is -27% cheaper on 12mf EV/Sales vs. key peer WTC. We expect revenue acceleration into FY22 to drive outperformance (+4% vs. VA Consensus) with significant LT opportunities to unlock further value (NZ$76bn TAM).”

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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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