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Xero Eyes Future IPO

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Xero announced plans for a future U.S. initial public offering during the online accounting software provider’s annual investor meeting Wednesday.

Peter Karpas

The company, publicly traded in New Zealand and Australia, expects to pass $100 million USD in annualized committed monthly revenue this fiscal year, positioning it for a public listing “when the timing is deemed right,” said chief executive officer Rod Drury in his presentation.

“It’s a logical step for Xero to list on the U.S. exchange, dependent on the internal and external conditions being right,” said Peter Karpas, chief executive officer in North America. Karpas was brought on in February to lead a growing U.S. team in an appointment that coincided with the U.S. hiring of new chairman of the board Chris Liddell and director of the board Bill Veghte.

“For us to be company we want to be, we need to compete and win in the U.S.,” Karpas said.

This bolstering of the U.S. executive team came four months after Xero announced it had raised $150 million in a new round of funding. Today the company says it is valued at $2.7 billion.

In fiscal year 2015, Xero is forecasting 80 percent growth in subscription revenue. Today, the “key number” according to Karpas, is the number of customers, which stands at 334,000 with a future target of one million as a “nice marking point.”  

“You look at our year-over-year growth of 83 percent—and the company we’re in, to hit it as fast as we have,” Karpas said.

Xero partially credits this speed with its youth, as it was built specifically for the cloud unlike older legacy systems. It’s a lucrative trend, according to Karpas.

“Look at Apple; it’s part of why they got Beats Music [for $3 billion in May], cloud music. Apple, one of the greatest companies on the planet, is doing acquisitions to move into the cloud. Intuit is moving to the cloud.”

Karpas views competitor Intuit’s acquisitions of products—which recently included Check, Lettuce and Docstoc—however, as a “Frankenstein approach to customer experience” compared to Xero’s “better, open ecosystem in the cloud.” Karpas joined Xero from PayPal, though prior to that he served in a number of senior roles for more than 10 years with Intuit. 

As Xero sets big goals for U.S. expansion, the target remains small businesses, according to Karpas.

“We are 100 percent committed to helping the small businesses of the world,” he explained. “When we talk about small business, we mean small businesses, truly small businesses. Those people need our help. Intuit is a monopoly and they behave like a monopoly. People haven’t had a legitimate alternative. Now, they are no longer a monopoly and we are a legitimate alternative. By legitimate I mean, we are not new, we are not small, and we’re going to be around.”

While Xero currently has 284,000 customers (and 11,573 accounting partners—45 percent of which were added in FY 2014), only 6 percent of those are in the U.S., as opposed to QuickBook Online’s 90 percent U.S. customer base (estimated by Xero as of March 31). Xero’s largest market is currently Australia, where it claims to be the leading online accounting provider, with New Zealand close behind and the U.K. also home to a large segment.

Xero’s U.S. strategy will fall in line with its global growth, according to Karpas, which is heavily dependent on word of mouth for Xero’s “amazing product.”

“Media spending is not the thing that does it, you have to have a great product,” he continued. “It starts with word of mouth, as people become aware of you.”

Xero is also actively hiring to add to its current staff of 870, with 390 people brought on in the past 12 months. 

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