The currency fall has a wonderful effect for exporters, especially those who have most of their costs back here in New Zealand.
As I write this, the NZD versus the USD has fallen about 10% since earlier this year. As an exampled of what this means I’ve made a simple spreadsheet estimating the impact on Xero.
My take is that the fall from the end of May to today would increase their estimated monthly revenue by about 4.3%.
Obviously this is only for revenue received after the exchange rate changes, so don’t expect any surprises when Xero announces their September revenue, although their Annualised Run Rate might have a boost.
But we’ve also heard talk of a desired optimum level of a rate of $.65 US dollars per NZD. If that happened tomorrow (and I am never a fan of fast movements), and if the AUDNZD cross rate stayed the same, then the Xero table would look like this:
That’s would show almost 10% increase in revenue, a lovely bonus for Xero and Xero’s shareholders. Xero does have a lot of staff offshore, but the bulk of their costs would be in NZD, so overall they should see a net increase in profitability, which in their case means little, as they are very well funded and constrained by things other than monthly profitability.
Every other exporter will be facing a similar scenario, but SaaS providers are luckiest because their costs are often largely in NZD, and so they will maximise the benefit.
Punakaiki Fund invested in three SaaS companies early this year – Timely, InfluxHQ and Mindscape. I’ll use public information to discuss them.
Timely and InfluxHQ are, like Xero and Vend before them, offering their services to the world, but find or found their early growth from NZ and Australia. That’s a natural part of being based here and the relatively high-touch sales and support approach for B2B SaaS businesses. But as they grow at some stage (that’s a bit I’ll leave to the companies to reveal) the dominant parts of their revenue will be from other currencies, so while the short term effect might be relatively small, the long term revenue impact (and the associated value of the companies) is potentially significant in New Zealand dollars.
Mindscape sell developer tools and the error tracking system Raygun.io globally. CEO JD Trask reported that Mindscape exported 95% of their products, and so the exchange rate changes will have an immediate and large effect on revenue. However they also focus their marketing efforts offshore, so the net effect will be lessened somewhat.
Overall I like businesses that match their inputs and outputs, as we should be investing in and growing businesses that are great businesses, not ones that react one way or the other to currency changes. But that said, a lower currency spells good times for many exporters.