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).”