Great analysis as always @jcmleng, and I agree that the Livewire Markets article shared by @OxyBBear provides a good explainer. It is a great example of why you really have to understand differences in each market, both market competitive structure, but also how each market works.

https://www.livewiremarkets.com/wires/why-xero-won-australia-but-will-struggle-in-america

As you asked for comment, I wanted to call out a couple of areas where I’ve arrived at a slightly different conclusion from you.

The US Market

Many of us who’ve followed $XRO in the US have long referred to $INTU as the 800-lb gorilla, and the Livewire article fleshes out in detail what we’ve always believed to be true. And yes, North American subscriber growth continues to underwhelm.

That said, I take a slightly different view on the US opportunity. I think the Melio acquisition (which adds hitherto missing payments capability and further builds out Xero’s 3x3 strategy) strengthens $XRO’s hand, even if it isn’t the game-changer we might hope for. I don't believe such a gamgechanger for the US exists, and I hope $XRO isn't chasing one!

To me, the US is not about $XRO catching $INTU. Rather, it’s about carving out a material and profitable niche under the pricing and market structure umbrella that Intuit’s dominance creates.

In the US, Xero competes on price simplicity and user scalability, while QuickBooks Online dominates on native US-specific functionality. Xero’s plans are generally cheaper and include unlimited users, making it attractive to multi-staff SMEs, professional services firms, and businesses that want broad internal access without escalating costs. By contrast, QBO’s pricing rises quickly as features and users increase, but it offers tighter integration with US tax, payroll, contractor management (1099s), and reporting frameworks. This is where the Livewire article is absolutely correct.

However, while this dynamic means $XRO will never replicate its ANZ dominance (driven by first-mover cloud advantage and a simpler tax regime) I don’t think it follows that Xero cannot build a material and valuable US business over time.

Its opportunity lies not in competing head-on for compliance-heavy mainstream SMBs, but in serving internationally oriented SMEs, venture-backed and tech-forward firms, multi-entity operators, and advisor-centric businesses where simplicity, cloud usability, and wide user access matter more than deeply embedded US tax processes. The strategy is less about displacing QuickBooks at scale, and more about becoming the preferred platform for structurally complex or globally-minded businesses that find QBO rigid and increasingly expensive as they grow.

As for Melio, I’m somewhat sceptical about the scale of revenue synergies, but at minimum it should drive sales efficiency and improved market coverage, giving $XRO more heft in the vast US market.

The UK Market

I also believe the UK market (roughly ~2x ANZ) is well suited to the $XRO offering. While it will never achieve the same dominance or metrics as ANZ, it continues to grow profitably and structurally. The UK still has heavy legacy system usage and cloud adoption lags ANZ, but among cloud-native providers, $XRO is clearly leading the race, with a meaningful lead over QuickBooks and Sage. While it won’t dominate as it has in ANZ, it should continue to evolve into a second material and profitable leg. It could even overtake ANZ in time.

Conclusion

I like the Livewire Markets analysis, but it isn’t new news from my perspective. I also think concluding that $XRO will not succeed in the US goes too far. Niche strategies can be both successful and sustainable, and the US is a large enough market for a well-executed niche approach to deliver meaningful long-term value. That said, the jury is still out.

While I previously reduced my $XRO position as SP approached $200, the recent share price weakness has given me the opportunity to rebuild towards my intended portfolio weight.

I remain high conviction on $XRO, for now. I recognise there are risks but, so far, I haven't seen any mis-steps under Cassidy's leadership.

Disc: Held (7.9% RL)

Discl: Held IRL 6.00%

I slept on my response to @mikebrisy's post yesterday because there was something I still could not quite articulate. But @Slew gave me those missing thoughts and words this morning. Thank you both!

My thoughts last night. The text in bold was my challenge.

@mikebrisy, many thanks for your very insightful commentary. This has led me to adjust my thinking somewhat.

UK Market

Fully agree with your thinking. The UK numbers were coming through very nicely in the last half. Given the sheer size vs ANZ, the lagging in cloud adoption and the 2026 case-for-change, the scenario of UK overtaking ANZ is not hard to see. 

US Market

I think my thinking is heavily influenced by the simplistic binary thinking that analysts have, implicitly or explicitly. Meaning, with Melio, either XRO takes market share away from INTU or it “fails” in the US. 

The 2 key points I take away from your thinking:

• It’s about carving out a material and profitable niche under the pricing and market structure umbrella that Intuit’s dominance creates” - fully agree with this
• The strategy is less about displacing QuickBooks at scale and more about becoming the preferred platform for structurally complex or globally-minded businesses that find QBO rigid and increasingly expensive as they grow - this makes sense

These make very good sense as US thesis objectives and removes the need for a 1 or zero US bet. Its the execution against the objectives that I have less confidence in. This is also admittedly, in relative terms to the initial conviction with XRO in ANZ - you KNEW it would succeed and grow. I have confidence the UK will grow as you say, I just don’t have that same conviction with the US.

But it is still very early days with Melio. We do yet have any evidence of how a XRO + Melio will make inroads into the US market - that is at least 6 months away.

I also agree that Sukhinder has been really good for XRO and I have not had any issues with all that she has done to date.

@Slew's thoughts below was exactly what I was struggling to articulate:

"I have no way of researching the US SME market—no ability to conduct on-the-ground customer research or evaluate “excitement” about the product. I have to rely on company reports and trust management on their progress and vision."

"During its growth phase in Australia, Xero was a ridiculously easy company to research and to verify customer uptake"

"Perhaps my bias and experience from holding XRO through the Australian growth phase is blinkering me."

Summary

In summary, I agree with @mikebrisy that ROTW growth can be (1) UK-driven and (2) tangible inroads into the US, not a binary INTU or XRO, scenario. But it MUST make US inroads, and show it yesterday, to justify the Melio bet and keep the share price afloat.

But against these objectives, how do I get self-driven clarity/comfort/conviction that the US inroads are actually being made in a complex market, with a huge incumbent top dog, as the underdog trying to take market share. Questions:

• What is the size of this "revised US pie" for XRO, against which we can make some assessment on probability of success?
• We can apply a % of the market and say that is the pie, but how do we assess actual progress against the pie to confirm that the pie is correctly defined?
• How does Melio drive or change the pie? How to assess this?

Against the first 7-8 years of clear full-on XRO ANZ growth, this is quite a sharp pivot and it absolutely challenges the thesis of XRO being the high quality compounder in perpetuity. This unease has been there in the past year-ish, and I did take action to reduce the large allocation in response - this was the right thing to do.

But this is now entering full thesis-challenging mode and I am highly conflicted between "let your winners run" thinking and whether things have fundamentally changed.

What Action To Take

Both your thoughts have helped me firm up my plan. No change in terms of the actions, but with @Slew's input, I now have significantly clearer conviction that this is the right way forward.

I was tossing 2 options (1) bank the profits and exit completely - this is a very attractive 6-bagger option! Or alternatively (2) reduce the allocation to reflect the lower conviction and wait and see what happens with Melio, with a large chunk of money already banked. 

I started some lightening this week, but it was not the easiest to hit the sell button on a core holding for about 10 years ... which is probably a sign that exiting completely is not the right thing to do.

I think I will now stay invested but slowly bring my holdings down from the current 6.5% to around maybe 3.5 to 4.5%, see what happens in the 2H results and go from there. No rush in the selldown - will sell into rallies as they occur as this is a sale from lower, not lost, conviction.

@jcmleng and @Slew a good debate on this one, for sure.

It is easy to develop and maintain conviction in isolation. So I find rigorous, fact-based challenge really helpful to clarify my own thinking.

I often return to these posts further down the track as I mull over things in the background. As @jcmleng rightly points out, $XRO is not the kind of business where you have to decide anything today with urgency. Afterall, the most recent time to get off the bus was when the last capital raising was done. That opportunity is now in the rear-view mirror.

So, for now I still have a solid conviction on two legs of the strategy (ANZ and UK) and I will be laser-focsed on the progress in the US over the next two reports, as the proof of that particular pudding will be in the eating. For sure, I need to see 3 solid legs to this business for me to stay on the bus in the medium to long term.

The next stop on this journey for me is FY26 in May.

@Solvetheriddle good challenges, as always.

Yes, I've always seen $XRO as "expensive" - ever since I first bought as an MF Pro recc. from Matt J at $19.36 in Sept 2016! And while I've trimmed as well as "traded" peaks and troughs over the 9 years since, it is still a "Top 6" stock in terms of the absolute returns it has delivered for me. But of course, that is one of the worst possible foundations for an investment thesis, as it is about the past and not part of my thesis - although it no doubt creates significant bias on my part! (Hence the need for showers of cold water from StrawPeople!)

I have a different view from you on Sukhinder. So far, I like all the moves she's made, as I've written in previous straws over the years. And I am going to cut her some slack, recognising that Melio looks like a reasonable attempt to achieve a step change in the US (even if they've paid richly for it.). It fits perfectly with the clearly articulated 3x3. Yes it is risky and might not work, but I think she needs to give it a go. North America is core to my thesis. I can't get there just on ANZ and UK.

On her compensation, I recognise it irritates many Aussies. But it puts her in the middle of the pack for US peers, even if is aggregious for the ASX. I don't like that she will still make $9-$14m over 3 years if the SP tanks to $80, because that's a rich reward and very misaligned with me. But I don't mind that she'll make $80-90m over the period if the SP hits $200. But no doubt if she "walks" in 2-3 years because the US gambit fails, I'll probably be playing a different record!! But does that harm my thesis? No. From what I can gather about her, I think she is very motivated to want to make close to $100m over the next 3 years. Surely that's table stakes for her to eventually move on in Techland?

However, since joining she has done exactly what I expect:

1. Move from a focus on high revenue growth to profitable growth (and yes, that means driving organisation efficiency ... I was worried they'd become bloated under Vamos, who created an expense CAGR of 27%, which SC has pulled back to 14% - restoring a decent gap between revenue growth and expenses growth. )
2. Focus the strategy on the 3x3: products and markets - super clear about what they are tring to do
3. Pursue a US acquisition aligned with the 3x3, because quite clearly $XRO was not delivering in the US due to competitve weakness.

On ANZ, I think they seem to be following a sensible strategy. Pushing ARPU while tracking churn. Backing off price rises in lower tiers makes total sense to me. You need time for new small businesses to use the product and come to depend on it. The ARPU drive should be focused on deploying feature options for larger customers, who have come to depend and rely on $XRO, hopefully together with their accountant. I still think that both churn and LTV/CAC indicates there is further room to explore on value extraction in ANZ. And I have no doubt they are take a very purposeful and data-driven approach to that. Some analysts have been moaning about the churn increase in recent results. But we are still well below the pre-pandemic average.

@occy I have a different view from you on the UK. I think they are building steadily there. Good subs increases and strong ARPU advances. Remember, the UK economy is in the doldrums, including poor business confidence which has bumped along the bottom for two years now. Recent renewal of HMRC MTD push should help drive the entry funnel at the sole trader level. Also, we have to remember that by the time $XRO got going in the UK, others were there or close to going with SaaS offerings, including Quickbooks, Sage, and a plethora of others. ANZ really was a unique opportunity. I am happy as long as UK growth continues to maintain clear headroom above ANZ growth. I'm not sure what alternative UK moves would have made sense. They were early enough to make sufficient progress organically, as they have.

Finally @Solvetheriddle - I agree with you about TPs, but I do like to see over the near term how my models vary from the consensus and also the dispersion around the consensus, and I do like to see how analysts react and change their numbers as new information becomes available. Some analysts also do useful research, so notes by the better ones can be helpful. But I agree with you - I don't take investment decisions based on analyst TPs (just as I'd hope no StrawPerson would ever take a decision or even gain comfort from my analysis! There is no excuse to not doing your own work even if you leverage the work of others. When I lose money, I only ever have myself to blame.)

And - just to trigger you some more ;-) - here's some of the updates that have come in over the last 24 hours:

• Morgans cut 30% from $210 to A$141
• Jeffries cut 19% from A$167.60 to A$135.50
• UBS cut 4.4% from A$203 to A$194
• Morgan Stanley cut 4.3% from A$235 to A$225
• Morningstar unchanged at their very nice A$100

On this limited sample, the average "cut" (ignoring Morningstar) was 14% moving from $202 to $174, I think the brokers at the upper end were and remain in LaLaLand. In aggregate, the analysts response is reasonably in line with my own analysis. (I always like to get mine out before the analysts do, so that I am not influenced by them.)

The high dispersion in the % cuts is not surprising to me. After all, the Melio acquisition has added a new "wild card" into the future picture, which is not unusual at times of major acquisitions.

I am also interested to see what Bob Chen at JP Morgan comes out with, and also Garry Sherriff at RBC, and how they move their PT's of $194 and $187, respectively. The former of the two has been a bit more steady in terms of TP progression over the last few years, although RBC do flap around all over the place, somewhat, even though I think the quality of their research is pretty good.

All good fun!

I agree that there is a certain level of comfort when some strawman members such as Mike have skin in the game with stocks you possess.

Onto Xero though, and my earth they have had a mighty dropoff. Seeing their price in the $120's currently is wild to me given they almost topped $200 not even 6 months ago. I was fortunate to buy in all the way back in 2014 and continually offloaded over the years (often with regret) until selling my final parcel in the $180's which just seemed far too frothy for my taste. Seeing their current price makes me interested again.

I do have to say though, while I admire the continued commitment to the USA footprint they are trying to establish, it really does feel as if they are wasting an opportunity in the UK by not attempting to stranglehold the market like they have done in ANZ. It feels as if they are neglecting some low hanging fruit. If I am reluctant to buy back in, this will more than likely be the reasoning.