Bernard Hickey looks at whether Xero has what it takes to become the 'Facebook of business'

By Bernard Hickey

It's been a while since we've had this much excitement around a company on our stock market.

People on the street were talking about it, or more accurately, tweeting about it.

Around 1 pm on Thursday shares in Xero hit NZ$41 on the NZX, valuing the accounting software firm at NZ$5.3 billion.

This pushed it above Auckland Airport and Telecom to make it New Zealand's second most valuable listed company behind Fletcher Building.

This is astonishing on so many levels.

Fletcher Building, which is worth around NZ$6.5 billion, has 18,830 workers, annual revenues of around NZ$8.5 billion and is on track to produce earnings before interest and tax this financial year of up to NZ$650 million.

Meanwhile, Xero had revenues of just NZ$28.7 million in the six months to September 30, albeit they almost doubled in the last year. Xero had just 507 staff as at August 1, although that number is rising almost daily as it ramps up.

It has never made a profit.

It's an old joke now that Xero is its name and its profit line. How on earth, or even in this universe, can a company with so little track record be worth so much?

The answer is all about Xero's potential to become, as CEO Rod Drury described it this week, the "Facebook of Business."

International investment bank Credit Suisse this week even called Xero the "Apple of Accounting."

These are extraordinary aspirations, but Xero has a good shot at it and it has some very high-powered backers with decades of experiencing building just such Internet behemoths.

They include the likes of Paypal co-founder and early Facebook investor Peter Thiel, TradeMe founder Sam Morgan and the founder of Australian accounting software group MYOB, Craig Winkler.

Xero really took off after it raised US$150 million in an apparent blink of an eye in October from Thiel and other US and local investors. The first paragraph of the announcement of the capital raising set out their ambition -- to take on and beat US giant Intuit in the contest for 29 million customers there.

No New Zealand has ever had a real shot at dominating a part of a global market before.

Some may wonder how a relatively small New Zealand company could do it and why the unsexy business of small business accounting could be so lucrative.

Xero's 'ecosystem' of add-on services is the key and it has the potential to create a flowering of many, many cloud computing companies in New Zealand.

Xero loves helping and working with these 'add-on' companies, which include the likes of point-of-sale cloud software firm Vend and GeoOp, which makes software for tradies to book and invoice jobs on the move.

GeoOp listed on the junior NZAX market last month at NZ$1 and quickly sprinted to as high as NZ$3.64 this week. Investors who think about how small businesses operate for a moment or two are quickly realising Xero could become the centre of everything business does online and in the cloud, ranging from payrolls to invoicing and payments.

These are rocket ship rides for investors and a huge boost for our stock market, which for too long was seen as a moribund place full of mature dividend-producing laggards.

It's also much more encouraging than the last time New Zealand's stock market was generating this sort of excitement. Back in the mid 1980s the market's rock stars were property developing financiers who borrowed and bought everything with the hope of selling it on at a profit.

Now the likes of Xero and GeoOp make real services that are being sold directly in huge global markets.

It will be a roller coaster ride, but it's one New Zealand investors need to see up close and personal.

They may even jump on for fun.