According to a Market Study report published last year, the global cloud-based accounting software market is estimated to grow at 9% CAGR to reach $4.32 billion by 2024 from $2.63 billion in 2019. New Zealand-based Xero (ASX: XRO)(XROLF) is tapping into this market by focusing on a PaaS strategy.

Xero’s Financials

Xero last reported its six-month results for the period ending September 2019. Its revenues grew 32% to NZ$338.66 million ($204.4 million). Subscription revenues grew 32% to NZ$327.94 million and other operating revenues grew 43% to NZ$10.72 million. The company turned profitable for the six-month period. Net income was NZ$1.34 million ($0.8 million) compared with a net loss of NZ$28.6 million a year ago.

At the end of September 2019, Xero crossed a milestone of 2 million subscribers. It now has almost 2.06 million subscribers. Xero took over a decade to build its first million subscriber base, but the next million subscribers were added in two and a half years. Xero attributes the expansion to significant regulatory and technology shifts globally such as adoption of cloud solutions by small and medium businesses and the digitization of tax and compliance systems.

Xero’s Platform Focus

Xero is driving its growth by focusing on the importance of a PaaS strategy. It has an app marketplace that allows for third party providers to publish apps to help extend Xero’s capabilities and integrations. It claims that it sends more than 30,000 monthly referrals to app developers from its pool of over 2 million subscribers and 100,000 accountants and bookkeepers.

Xero’s app marketplace offers over 800 apps that provide services such as accounting, payments, and inventory management. It is supporting the app marketplace by helping businesses select the right apps by helping advisors create a curated experience for their clients based on app recommendations from the marketplace. It is also making simple changes that help make the app experience more seamless such as adding single-sign-on capabilities to allow users to log into their connected apps.  

Besides third-party app development, Xero is also ensuring that its platform provides deep integrations within business applications and services. It now supports integrations with more than 200 banking and financial institutions globally. For instance, last year it expanded its partnership with global payments services provider Stripe. The partnership allows its small business customers to get paid faster.  

More recently, it announced deeper integrations with Google, Microsoft Office 365, HubSpot, and other apps used by businesses. It announced integrations with HubSpot, Google Contacts and Microsoft Office 365 to allow for instant update of customer contacts from Xero to these apps. It also announced an integration with Mailchimp that will allow businesses to quickly create curated audience lists within Mailchimp marketing campaigns.

Xero’s stock is currently trading at AU$73.09 with a market capitalization of AU$10.3 billion ($6.3 billion). It touched a 52-week high of AU$90.22 last month and a 52-week low of AU$47.47 in March last year.