That’s where its shares were trading before it bought US-Israeli company Melio midway through last year.
In a non-binding “advisory vote” at Xero’s annual meeting in August last year, shareholders voted 51.26% to 48.74% against Singh Cassidy’s “United States-style” pay package, which the firm had said was in line with Xero’s US peers.
Xero is registered in Wellington and reports in New Zealand dollars, but is listed on the ASX.
Former Google executive Singh Cassidy and much of its executive team are based in San Francisco or elsewhere in the US.
Her pay package far exceeds that of Xero founder Rod Drury, who stepped down as chief executive on April 1, 2018 (the start of the FY19 financial year).
Xero’s annual report said his FY18 remuneration was $779,000 (made up of a base salary of $550,000 plus a bonus; he did not receive any shares).
Xero’s recent share price swoon has not impacted Drury’s wealth as much as it once would have.
After the firm listed, he progressively sold down his stake from around 40% to somewhere below the 5% disclosure threshold, with his last major sale made in 2021.
If Singh Cassidy had hit her total target remuneration of $26.4m, it would have made her easily the highest-paid chief executive of a New Zealand-registered company.
The Herald’s latest CEO Pay Survey was headed by Gentrack’s Gary Miles with his $17m payday.
Xero’s report on its earnings came after twin controversies for the company.
The firm has opened an investigation into alleged sexual misconduct by its former chief executive Rod Drury.
It has also been grappling with fallout from a multi-day outage.
Singh Cassidy has apologised for the outages and said they were unacceptable.
Customers have been offered credits in compensation.
Oversold shares
Morningstar analyst Roy Van Keulen believes Xero’s shares have been oversold.
The firm’s shares fell sharply immediately after it revealed a 27% fall in full-year profit, pinned on $111m in losses associated with its acquisition of US payments firm Melio.
“When you have two negative narratives, they amplify each other,” he told the Herald after the accounting software company’s full-year earnings.
Xero’s shares have more than halved since June last year. Some analysts, like Van Keulen, viewed Xero as overpaying for Melio in a deal worth up to US$3 billion.
Others have highlighted threats from AI, including Claude maker Anthropic releasing low-cost and free tools for small businesses.
Anthropic also partnered with Xero to help it boost its in-house AI, with an integration finished just in time for full-year earnings.
But Harbour Asset Management portfolio manager Shane Solly pointed out that the announcement was spoiled yesterday as Anthropic revealed it was releasing Claude For Small Business, aimed at users of Xero’s archrival, Intuit Quickbooks.
‘Bullish for the first time’
Van Keulen is looking past both threats, with a A$100 fair valuation (shares were recently trading at A$80.41).
“I’m bullish about Xero for the first time ever,” he told the Herald.
The Morningstar analyst says the AI threat is overblown.
He maintains his position – held since the acquisition – that the Melio purchase was a “waste of time and money” in another bid to crack the US, which he sees as a thankless market.
“But the market cap can be justified by the Australia-New Zealand business alone,” he said.
The ANZ business had a high profit margin but was saturated, he said. He rated Xero’s UK business strong, with room for expansion.
He did not see Melio helping Xero crack the US, where he estimates the complexities of different tax and regulatory set-ups in every state, and the blowout customer acquisition costs (Xero does not break to customer acquisition cost for the US).
‘They’ll just let it go’
How could Van Keulen be bullish with Melio – which he has critiqued so harshly – still part of the picture?
“At some point, they’re just going to let it go,” Van Keulen said.
“There will be an activist investor that comes in and says, ’I will replace management unless you exit the US’. The rest of the business is valuable, but the US is just dragging on results.”
Two potential new lines of revenue
In a post-earnings note, Jarden analysts Tom Beadle and Lexi Butler maintained their “buy” rating but trimmed their 12-month target by A$3 to $A117.
The pair saw potential to take new, multibillion-dollar lines of revenue as Xero – currently focused on sole traders and small businesses – announced “Ultra”, a new plan to support medium-sized businesses in Australia. Pricing has yet to be announced.
Xero also announced XeroForce, a natural language AI agent for accounts.
“While the path to monetisation for this product is unclear, we see it embedding Xero more deeply into accountants’ workflows, which will act as a defence against AI disruption,” Beadle and Butler said in their research note.
Chris Keall is an Auckland-based member of the Herald’s business team. He joined the Herald in 2018 and is the technology editor and a senior business writer.