Xero (ASX: XRO) rallied 7.71% today on the back of a coronavirus-fueled selloff in the last few days. The company was the best performing stock in the ASX in today’s session followed by Bega Cheese and Clinuvel Pharmaceut. This is after coming off one of the fastest corrections in history as COVID-19 reaches pandemic proportions. Despite the constant bombardment of the coronavirus news, Xero is relatively resilient to COVID-19 and continues to be used by small to medium-sized businesses.
Xero produces online accounting software and is the favored cloud-based solution of a large share of the industry. The company offers its software to small and medium-sized enterprises and develops a strong recurring revenue stream through high switching costs. Xero’s expansion into the US market weakened all major competitors since the company was able to take a large share of the market. Differences in US tax laws have weakened the value proposition of Xero’s accounting software, but the company’s larger customer base gives them more capital to reinvest in software improvements.
What differentiates Xero from other competitors is its loyal database and open-architecture platform which allows 3rd parties to develop on its platform. This further improves the application as history shows that knowing what customers want is a competitive advantage since they’re the ones using the platform.
The company’s three top plans range from $25 to $65 a month, a figure which we believe can increase substantially over time. The current low-cost pricing strategy is reflective of the land grab currently at play in the industry and will be reversed over time as Xero digs deeper competitive moats around their business
This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
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