Another 5% fall in Xero today puts the drop from the 52-week high at ~50%..

I've stayed away for a while as the price always just seemed to "full", even accounting for the potential for great operating leverage and a large TAM. But having a quick look this afternoon, it's still tough to make a strong case for value.

If you pro-rata the half year results, shares are on a >8x revenue multiple, or a forward PE of something like 80x. I'm not afraid to pay up for quality and growth, but that just seems up there for a $17b company.

I havent been following closely, but that massive US$2.5 billion acquisition of Melio seems like it's a huge part of the problem. While management pitched it as a way to win the US, organic growth in North America is not accelerating. Not yet at least. And although it's probably too early to know if some of the cost expansion will prove worthwhile, and some of it was one-off, we're not seeing an effective scaling so far -- despite 20% revenue growth in the latest half, operating income was down 22%

Yeah, you have a veritable cash cow for the domestic operations, but it feels there's little scope for any material market share expansion at this point.

Unless i'm missing something (which i probably am), i'm happy to stay on the sidelines for now.

Xero has announced the acquisition in Planday -- a workforce management platform (that allows small businesses to manage payroll, staffing levels, leave etc) -- in a deal worth EU155.7m plus a further EU27.8m in earnouts if certain targets are met (AUD$240m, plus AUD43m in earnouts). It has around 350,000 users.

It's all about broadening the small business offering. It will allow Planday to be cross-sold to existing Xero users, and expand it outside of Europe and the UK.

In theory, it should also bind Xero's offering tighter into customer's processes, and thereby increase retention and pricing power. Planday has been an ecosystem partner with Xero since 2019, so it's already integrated and you'd imagine Xero has some good insight into its popularity with users.

45% of the deal will be paid in shares (roughy $1m new shares, next to 146.7m outstanding), the rest in cash.

I really like xero. Actually bought a lot of shares years ago at ~$12 and thought i was a genius when i sold out at ~$20.. Not sure how many times i'm going to make the mistake of being too fussy and too conservative on price for high-quality, fast-growing businesses with long runways..

But maybe i'm still making that mistake with Xero right now. I just find it very hard to get past some of the multiples. A 24x price to sales, and a 320x PE, for a $17b+ company, just seems waaaay up there.