1 Reason Xero Limited Joined Forces With Gusto

Companies and indices mentioned:

This morning Xero Limited (ASX: XRO) announced a strategic alliance with Gusto for its US payroll solutions.

In an ASX filing, Xero said it will integrate its platform with Gusto, a cloud software payroll business, to provide its US-based customers with full-service payroll across 50 states.

As it pushes its “beautiful accounting software” around the world, Xero had been developing its own US payroll systems by investing in research and development (R&D).

While the United States economy is much larger and more valuable than ours here in Australia, each US state has its own rules and regulations on tax. Therefore, payroll processes within and across US states can be complex and difficult to develop.

“Through the alliance Xero will serve the needs of customers in all 50 States and address one of the greatest pain points for US small businesses – managing payroll with beautifully integrated accounting,” Xero CEO Steve Vamos said.

By partnering with Gusto, Xero will be able to leapfrog some of the R&D that would be necessary to develop its systems in-house. But it means the company will incur a NZ$16.2 million write-down to assets in its 2019 financial year for development projects it has already undertaken, Xero said.

What Now

Xero said it will now be able to focus its resources in other areas of development while servicing its existing US customers better.

“We have found the majority of US small businesses want a full-service payroll solution,” Vamos added. “This strategic alliance allows us to focus our investment in our payroll product and brings important financial benefits and more efficient deployment of our resources as we execute our growth strategy.”

Xero claims to have more than 1.4 million subscribers using its accounting, bookkeeping and tax software spread throughout Australia, New Zealand, UK, USA and elsewhere. Gusto’s software boasts more than 60,000 companies in the US alone.

Xero shares were trading 0.2% higher on Friday morning, according to CommSec.

Owen Raszkiewicz

Owen Raszkiewicz

Owen is the Founder of Rask Australia, Lead Investment Analyst for Rask Invest and head educator at Rask Education.