27% fall in full-year profit<\/a>, pinned on $111m in losses associated with its acquisition of US payments firm Melio.<\/p>\n\u201cWhen you have two negative narratives, they amplify each other,\u201d he told the Herald after the accounting software company\u2019s full-year earnings.<\/p>\n
Xero\u2019s 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.<\/p>\n
Others have highlighted threats from AI, including Claude maker Anthropic releasing low-cost and free tools for small businesses.<\/p>\n
Anthropic also partnered with Xero to help it boost its in-house AI, with an integration finished just in time for full-year earnings. <\/p>\n
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\u2019s archrival, Intuit Quickbooks.<\/p>\n
\u2018Bullish for the first time\u2019<\/p>\n
Van Keulen is looking past both threats, with a A$100 fair valuation (shares were recently trading at A$80.41).<\/p>\n
\u201cI\u2019m bullish about Xero for the first time ever,\u201d he told the Herald.<\/p>\n
The Morningstar analyst says the AI threat is overblown. <\/p>\n
He maintains his position \u2013 held since the acquisition \u2013 that the Melio purchase was a \u201cwaste of time and money\u201d in another bid to crack the US, which he sees as a thankless market.<\/p>\n
\u201cBut the market cap can be justified by the Australia-New Zealand business alone,\u201d he said.<\/p>\n
The ANZ business had a high profit margin but was saturated, he said. He rated Xero\u2019s UK business strong, with room for expansion. <\/p>\n
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).<\/p>\n
\u2018They\u2019ll just let it go\u2019<\/p>\n
How could Van Keulen be bullish with Melio \u2013 which he has critiqued so harshly \u2013 still part of the picture?<\/p>\n
\u201cAt some point, they\u2019re just going to let it go,\u201d Van Keulen said.<\/p>\n
\u201cThere will be an activist investor that comes in and says, \u2019I will replace management unless you exit the US\u2019. The rest of the business is valuable, but the US is just dragging on results.\u201d <\/p>\n
Two potential new lines of revenue<\/p>\n
In a post-earnings note, Jarden analysts Tom Beadle and Lexi Butler maintained their \u201cbuy\u201d rating but trimmed their 12-month target by A$3 to $A117.<\/p>\n
The pair saw potential to take new, multibillion-dollar lines of revenue as Xero \u2013 currently focused on sole traders and small businesses \u2013 announced \u201cUltra\u201d, a new plan to support medium-sized businesses in Australia. Pricing has yet to be announced. <\/p>\n
Xero also announced XeroForce, a natural language AI agent for accounts.<\/p>\n
\u201cWhile the path to monetisation for this product is unclear, we see it embedding Xero more deeply into accountants\u2019 workflows, which will act as a defence against AI disruption,\u201d Beadle and Butler said in their research note.<\/p>\n
Chris Keall is an Auckland-based member of the Herald\u2019s business team. He joined the Herald in 2018 and is the technology editor and a senior business writer.<\/p>\n","protected":false},"excerpt":{"rendered":"That\u2019s where its shares were trading before it bought US-Israeli company Melio midway through last year. In a…\n","protected":false},"author":2,"featured_media":428527,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[219334,219629,58506,2172,4765,4282,138,3013,3937,49063,4377,3273,185572,2513,1132,111,139,69,90,2744,6046,3333,3941,2122,21981,1120,219628,3940,16570,102,86495,217345],"class_list":["post-428526","post","type-post","status-publish","format-standard","has-post-thumbnail","category-business","tag-19m","tag-219629","tag-75m","tag-analysts","tag-annual","tag-boss","tag-business","tag-but","tag-chief","tag-companys","tag-executives","tag-future","tag-haircut","tag-lower","tag-million","tag-new-zealand","tag-newzealand","tag-nz","tag-on","tag-pay","tag-potential","tag-price","tag-remuneration","tag-share","tag-shrinking","tag-takes","tag-tanking","tag-total","tag-upbeat","tag-with","tag-xero","tag-xeros"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/428526","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/comments?post=428526"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/428526\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media\/428527"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media?parent=428526"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/categories?post=428526"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/tags?post=428526"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}