Xero tops $1b in revenue

WELLINGTON: Xero crossed the $1 billion revenue mark for the first time in the year to March 31 but slipped to a $9.1 million net loss compared with its prioryear $19.8 million net profit.

The ASXlisted Wellington cloud accounting firm said subscriber numbers climbed 19% from 2.74 million to 3.27 million, while average revenue per user increased by 7%. The two factors combined for a revenue rise to $1.1 billion from the yearago $848.8 million.

The firm said it slipped into the red because it was investing for growth. Its headcount increased to 4784 — a 31% increase, or 24% excluding acquisitions.

Product design and development expenses increased by 49% to $372 million. Xero gave no profit/loss or revenue guidance as Covid uncertainty continues, but did say total operating expenses for the 2023 financial year, excluding acquisitions, were ‘‘expected to be towards the lower end of a range of 80%85%’’ compared with the 84% reported for the year just closed.

While the 19% subscriber growth rate is robust at a time when Xero’s target small business market is under pressure, it still falls short of the 30%plus growth rates enjoyed prepandemic.

Australia (1.34 million subscribers), the United Kingdom (850,000) and New Zealand (512,000) remained easily Xero’s largest markets, although it continued to make progress in North America, where subs were up 19% to 339,000. New Zealand had the lowest growth of Xero’s major markets, at 15%.

Xero shares hit an alltime high of $A156.60 ($NZ172) in November (for a market cap of $A23.5 billion) before being caught in the ‘‘Tech Wreck 2.0’’ downdraft. They closed on Wednesday at $A86.97 (for a $A13 billion cap).

One analyst is backing a bounceback in the Xero share price after its recent selloff. Jarden’s Elise Kennedy has a 12month target price of $A150 on it.

Ms Kennedy had a buy rating going ahead of yesterday’s results.

In a note this week, she said the recovery of small and medium entities might not be as strong in Australia/New Zealand and the UK as expected by the market, but that would be partially offset by the churn in Xero’s clients remaining low.

‘‘We continue to see Xero as a longterm buy, given it is a global market leader in a $A74 billion enterprise resource planning finance TAM [total addressable market] and with IT adoption at greater than 20%, it provides a long runway for growth. We see regulation, platform revenue growth and acquisitions as potential catalysts for the share price.’’ —