New Zealand tech company Xero has $1.2 billion wiped off valuation as losses widen
Another tech outfit has had a brutal day, with losses soaring by 170 per cent, shares plummeting and $1.2 billion wiped off its valuation.
A tech company experienced a horror day on the stock market with $1.2 billion wiped off its valuation after it revealed its losses had blown out and its CEO was leaving.
Xero, a New Zealand-based company that provides accounting software for businesses, released its financial results for the first half of the year, and while its revenue was up 30 per cent, its losses soared by 170 per cent.
Its results showed its net loss widened to $NZ16.1 million ($A14.7 million) from $NZ5.9 million ($A5.4 million) the previous year.
Analysts said the company also fell short with its earnings before interest, tax, depreciation and amortisation behind expectations at $NZ108.6 million ($A98.9 million).
The news sent shockwaves through the stock market with Xero’s shares plunging almost 11 per cent to $64.74 when it closed.
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Meanwhile, its current chief executive 65-year-old Steve Vamos, who has been in charge since 2018 and previously described it as the best job he has ever had, has also retired, with former Google regional president Sukhinder Singh Cassidy set to take over in February next year.
Josh Gilbert, market analyst at eToro, said the departure of Xero’s CEO added a fair amount of uncertainty for shareholders.
“Revenues were up 30 per cent, beating analyst estimates, but that’s the end of the good news, with growth on the top line not helping Xero’s bottom line,” he said.
“Xero’s net losses are widening – they also missed expectations on earnings before tax, interest and depreciation and the market isn’t liking this. Its net loss widened by over 170 per cent to $NZ16.1 million ($A14.6 million) from $NZ5.9 million ($A5.4 million) last year.
“It’s been a challenging year for tech stocks, especially smaller disruptive tech stocks such as Xero. Its share price is currently down 55 per cent in the last 12 months, and this result has seen shares drop to a new 52-week low of $A65 a share.”
During Mr Vamos’ time at the company he oversaw the company leap from 1.4 million subscribers to 3.5 million and took its annualised monthly revenue from $NZ484.4 million ($A440.9 million) to a whopping $NZ1.5 billion ($A1.4 billion).
Elise Kennedy, vice-president of equities research of investment company Jarden Australia, said the stock market fallout had been so severe because questions had been raised about the future direction of the company with the change of leadership.
“There’s no doubt that this business is getting great growth still from Australia and New Zealand. Average revenue per users is up … the business is great when it gets a foothold,” she told the Australian Financial Review.
“But, can they replicate that success offshore? [The market is] not sure. Do they have the right type of person as the new CEO? We don’t know. Will they start making money, or do they need to bleed a lot more [to grow internationally?] These are all unknowns.”
Ms Singh Cassidy will start at Xero later this month, although she will remain based in the US which hints at where the company might be looking to gain a better foothold, while Mr Vamos will help to facilitate the transition in leadership up until May.
Xero did not perform as well as expected in the US and UK either, although the UK had 14 per cent growth in subscribers to 894,000, while revenue leapt 32 per cent to $175 million.
But while a new CEO could herald changes, Mr Gilbert said a mixed bag was ahead for the company.
“Xero has great potential as it continues its expansion, particularly into the UK market, with more global opportunities likely in the company’s future,” he said.
“However, given the current macroeconomic environment, the share price will likely remain under pressure in the short term.”
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