Published on the 01/05/2015 | Written by Donovan Jackson
Reporting season has kicked off for the NZX tech stocks, and the news is led by a heavier than anticipated flood of red ink from Xero…
Long a darling of the tech industry, Xero’s shine has come off a little, not because of the company’s continued losses as product and market investments out of healthy cash reserves continue apace, but rather owing to a couple of sudden changes in the executive suite. Meanwhile, with revenues up seven percent Orion Health Group has delivered a solid performance. Neither companies have created much excitement on the NZX board, reflecting a year of overall flat or negative pricing sentiment across the tech sector.
Xero’s result showed a loss of some $69.5 million, almost doubling that of last year. On the face of it, it’s not good news with the figure some 25 percent on the wrong side of analyst expectations. The top line numbers were, however, positive with strong customer and revenue in all markets. Australian market rules require companies likely to miss the mark by more than 15 percent to update guidance before results announcements. Be that as it may, Xero is following an aggressive international customer acquisition expansion strategy, with its MD of Australia, Chris Ridd, recently telling the Sydney Morning Herald that the real problem is “local investors struggle to understand the metrics that are important to valuing high growth software-as–a-service companies”.
Where the vendor is coming under most fire is the pace at which it has gone through members of its executive team. CFO Douglas Jeffries lasted just eight weeks, briefly tenured United States chief executive Peter Karpas spent just seven months at the company, and chief revenue officer Stuart McLean was with Xero for some 21 months. Tom Pullar-Strecker provided an excellent analysis on the topic in detail on Stuff. CEO Rod Drury meanwhile remained upbeat in a blog post on xero.com saying the company had strengthened its US management team, and is primed to move forward fast. “We continued to invest for growth and scale – including in talent to ensure we have the leadership, capability and capacity in place globally to allow this company to flourish and grow globally at scale.” He also noted that Xero had hired more than 400 people in FY15.
Traders seem to remain unconvinced however, and, despite a full 77 percent rise in revenues to $123.9 million, its shares shed nearly 10 percent to NZ$20.85 in the wake of the full year results and subsequently are still trading under the NZ$20 mark.
Xero share price – 2014-15
Source: Forsyth Barr/NZX
Health software and services company Orion Health Group reported growth of seven percent taking unaudited revenue to $164-million for the year ended 31 March. That created a blip in its share price of around three percent. Orion made headlines after its IPO in November last year when it hit the NZ$1 billion market capitalisation mark on its second day of trading, but has seen its share price fall below that of the initial IPO and continue a steady decline in the first months of the first quarter after it reported lower than expected revenue.
At the time Orion COO Graeme Wilson referred to the dip as the “iPhone 6 effect” where no one wants to buy an iPhone 5 in the months leading up to a tech refresh, telling the New Zealand Herald that Orion’s customers were waiting until its new technology arrived.
Orion Health Group share price since launch
Source: Forsyth Barr/NZX
