Small business owners will tell you how much of a hassle accounting can be. This is why it’s no surprise that cloud-based accounting software is growing in popularity. Not only do they automate part of the accounting process, but cloud software is also accessible over multiple devices, is easily shareable, have multiple add-on features to integrate other aspects of the business, and are automatically upgraded over the cloud.
Xero Limited (ASX: XRO), as one of the first cloud software-as-a-service (SaaS) accounting tools provider, is one of the beneficiaries of this trend. Xero originated in New Zealand and is listed in the Australia stock market. Today, it dominates its core Australia and New Zealand markets, and counts more than 2 million subscribers worldwide.
Using my blogging partner Ser Jing’s six-point investment framework, I analyse whether Xero has the potential to be a long-term compounder.
1. Is Xero’s revenue small in relation to a large and/or growing market, or is its revenue large in a fast-growing market?
Xero, as of 31 March 2020, served 2.285 million customers. Of which, around 1.3 million were from...