Xero's Rod Drury criticises MYOB prospectus as war of words escalates

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This was published 9 years ago

Xero's Rod Drury criticises MYOB prospectus as war of words escalates

By Shaun Drummond
Updated

Xero founder Rod Drury has escalated his attacks on MYOB, claiming the prospectus for its $2.7 billion listing does not give enough detail for investors to decide whether the company is losing the fight against its rival.

Mr Drury said he had hoped to see more detail on how many cloud-based customers the accounting software provider has in New Zealand – where the NZX and ASX-listed Xero is headquartered. Nor has MYOB split up its customer numbers by product, he said.

XERO founder Rod Drury has attacked MYOB's prospectus, claiming it lacks the right details.

XERO founder Rod Drury has attacked MYOB's prospectus, claiming it lacks the right details.Credit: Janie Barrett

Prior to the launch of MYOB's initial public offering on Tuesday, Craig Boyce, a director US private equity firm Bain Capital which owns MYOB, said previous criticism by Mr Drury was "outrageous" and inaccurate.

On the same day, Xero put out a press release announcing it had reached 200,000 paying customers in Australia out of a total customer base of 400,000, with 119,000 in NZ and 61,000 in Britain.

MYOB has 505,000 paying clients across Australia and NZ, with 116,000 of those cloud-based customers who pay a subscription, according to its prospectus. It has a further 716,000 non-paying customers using its desktop software, which MYOB says could be converted into paying customers.

"We have a unique situation," Mr Drury said. "They have a directly comparable competitor which has been listed for seven years. MYOB is a great brand and I have investors who want to see what has happened with it. With a clear comparison like Xero, it seems to me that they should compare themselves directly."

His contention is that Xero is doing far better than MYOB in NZ and is repeating its success in Australia, as well as expanding outside the region.

"In NZ it is acknowledged Xero has won. If that is the case, investors will want to know if it is going to happen in Australia too. It is hard to know without breaking out the numbers," he said.

An MYOB spokesman said the prospectus went through a rigorous verification process. "We are not making claims, we are stating facts," he said.

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Breaking down customer numbers according to geography and product is too "commercially sensitive" to reveal, he said.

The spokesman said 83 per cent of MYOB's revenue comes from Australia with the balance from NZ. MYOB has held "consistent market share of 60 to 65 per cent of the SME accounting software market in Australia and New Zealand," he said.

"MYOB's cloud users have grown by 88 per cent on average over the last two years. Our paying user base grew at 10 per cent on average between December 2011 and December 2014," he said. "Ninety-four per cent of our 2014 revenue was recurring in nature. Recurring revenue from SME solutions was up 15 per cent from 2013 to 2014."

Mr Drury repeated previous criticism that MYOB's organic growth is low compared to Xero's in cloud subscriptions, which is where all competitors in the market acknowledge the industry is headed. He said the growth MYOB has achieved is via acquisitions, including NZ-based BankLink, which allows small business accountants to take direct feeds from client bank accounts into MYOB's accounting software. But Mr Drury claims to be siphoning off customers from this product in NZ.

"We have been booking literally thousands of BankLink customers. Investors would want to compare them by product," he added.

MYOB is sticking to the Australia and NZ market, arguing there is enough room to grow here and it is riskier to spread themselves globally.

Xero has moved into several major markets overseas to compete with the likes of NASDAQ-listed Intuit, which offers Quickbooks and is also competing in Australia and SAGE.

Mr Drury maintains online-subscription-based software costs a lot to maintain because programmers must constantly update software and so it requires scale.

"These [software as a service] businesses require so much investment. So we have customers in over 180 countries and very large developer teams," Mr Drury said.

"You are effectively writing SAP for small business. You have got to write millions of lines of code."

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