Xero shares at record high as profit jumps

Xero’s profit surged 76 per cent to top $86m, as the cloud accounting giant enjoyed a jump in average revenue per user.

Xero chief executive Sukhinder Singh Cassidy.

Xero’s profit surged 76 per cent to $NZ95m ($86m) as the cloud accounting giant enjoyed a jump in average revenue per user.

Revenue was $NZ995m, growing 25 per cent year-on-year in its first half, as its subscriber numbers grew to 4.2 million.

The market responded kindly, sending shares in the New Zealand company to a record high of $172.84 on the ASX before settling to close at $171, a 5.6 per cent spike for the day, valuing the tech giant at $26bn.

Despite the surge, chief executive Sukhinder Singh Cassidy told The Australian she did not spend much time watching the share price.

“We’re much more long-term oriented than what today’s stock price is doing,” she said, adding she was more interested in seeing a stronger second half.

Over the six months to September 30, Xero added a total of 241,000 subscribers with average revenue per user growing 15 per cent to $NZ43.08 in the six months to September 30.

The company reported earnings before interest, taxes, depreciation and amortisation of $NZ312m, up $NZ106m year-on-year.

The result was welcomed by Wilsons Advisory analysts Ross Barrows and Lachlan Woods, who described the half-year results as “solid”.

“We remain confident on the long-term story for Xero but have caution on the back of slowing subscriber growth and Xero having to use product mix and pricing to maintain revenue growth in a tough macroeconomic environment,” they said.

“While it continues to experience the ‘base effect’ of the size of the business with underlying subscriber numbers (excluding the long idle subs) continuing to grow but at a more modest pace … the overall business is growing well.”

E&P tech analyst Paul Mason said while Xero’s revenue and its net profit were relatively in line with market expectations, there had been some concerns regarding its first half performance prior to the result.

“Heading into the result a lot of our conversations featured people worried about the cost side of the business in the first half, and as such the company beating at the EBITDA line will likely be positively received overall, and we would expect the stock to see some support,” he said.

While RBC analysts said the result was largely positive, they noted a weaker performance in the US mostly due to Xero switching off inactive accounts.

“Bulls will like pricing strength, churn, earnings/FCF beats, while bears will point to better pricing masking slower subs growth, with the US delivering a weaker than forecast result,” an analysts note read.

Ms Singh Cassidy said she was confident the company remained on track, with its second half typically its strongest. “Of course, we worry about the economy because our customers are worried about the economy, but they need our tools even more so,” she said, adding customers became focused on analytics in the platform when business slowed.