This is the key to MYOB's strong revenue growth

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Tim Reed has just delivered his first profit since his accountancy software group MYOB listed on the ASX.

He had the happy duty of announcing that MYOB now had 528,000 paying users, up 10% and ahead of prospectus forecasts.

And not only are subscribers increasing but the revenue from each of them is rising. Each subscriber is now worth $371, up from $354 the year before and ahead of prospectus guidance by about $7.

This added up to a 8% increase in overall revenue for the six months to June to $161 million.

Underlying profit was up 14% to $40 million. The statutory profit was a loss of $65.04 million but that included the costs of relisting on the ASX in May.

And dividends will probably start flowing from the second six months.

The business is being driven by increasing revenue from subscriptions to cloud-based software, a change from years past when software was paid for and installed. No further revenue, except for updates, to the software creator.

Subscription revenue, in the form of a monthly fee, has a magic component. A company with such revenue starts each year with a good chunk of revenue already in place because subscribers gained are still paying from the year before. Under the old model, money didn’t come until new sales were made.

“Those who purchased from us some years ago are increasingly moving from the desktop to our cloud based solutions,” Tim Reed told Business Insider.

“Our paying users are growing 10% year-on-year and our cloud users are growing 65% and that is underpinning the strong financial results that we shared today.

“94% of our revenue is recurring and if you went back five or six years that was at about 80%. It’s been a real growth driver for us as we’ve brought our cloud based solutions to market.”

This shows the growth of subscriptions:

There’s plenty of competition in the cloud accounting software segment, including one making a big mark, Xero, also listed on the ASX.

“There is a lot of noise but we like to focus not on noise but on delivering value to our clients,” says Reed.

“Competition is great and I think it’s great for every business. I fundamentally believe that because it forces businesses to look deep within themselves and make sure they are doing the right thing for their clients.”

He says it’s all about making it easier, simpler and faster for a small business to get accounts done.

And that means innovation. Making the product better. And it’s also about customer service.

“Customer service is important to us,” he says. “They get to speak to people and our service teams are in Melbourne and Christchurch. They get to have a good chat to someone who understands the local business environment.”

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