The Xero Limited (ASX: XRO) share price is under the spotlight after reporting another period of strong growth in the FY23 half-year result.
Xero is an accounting software ASX tech share, building a global subscriber base.
Xero’s HY23 result
These are some of the highlights from the company’s result:
- Operating revenue jumped 30% to NZ$658.5 million
- Total subscribers went up by 16% to 3.5 million
- Annualised monthly recurring revenue (AMRR) went up 31% to NZ$1.5 billion
- The gross profit margin was 87%, down 0.1 percentage points year on year
- EBITDA (EBITDA explained) increased 11% to NZ$98.1 million
- Free cashflow jumped 145% to NZ$15.6 million
Australia saw 126,000 net subscriber additions to 1.47 million. New Zealand experienced 24,000 net subscriber additions to a total of 536,000.
The UK only saw 44,000 net subscriber additions but Xero expects momentum in subscriber additions here to improve over the rest of FY23.
North America experienced 15,000 net subscriber growth to reach a total of 354,000. It’s expecting subscriber additions to improve over the rest of FY23. Xero is working on ‘localising’ its product in the US and Canada – in other words, making the software as relevant to those markets as possible.
In the rest of the world, there were 16,000 net subscriber additions to reach a total of 242,000. For now, it’s focused on places like South Africa and Singapore.
Subscriber growth is one of the main things that can help the Xero share price rise, because of what that means for things like revenue and scale.
New CEO
Xero announced that the company is transitioning from Steve Vamos to Sukhinder Singh Cassidy as the CEO of the business on 1 February 2023.
Vamos is retiring from the role and plans to return to his previous job in business coaching and leadership development as an advisor, director and investor.
The incoming CEO is “an experienced Silicon Valley executive”. She has worked in businesses like Alphabet (Google), Amazon and eBay (StubHub). She has board experience in businesses like Upstart, and Trip Advisor.
Xero’s chair paid tribute to the growth that Xero has achieved under Vamos’ leadership, where it has gone from 1.4 million to 3.5 million subscribers.
Outlook for Xero and the share price
The business is planning to continue to invest in its product development for the UK and North American markets. But, in the long-term, it’s expecting its profit margins to increase.
In FY23, total operating expenses are expected to be in the “lower end” of a range of between 80% to 85%. That compares to 84% in FY22 and 83.9% in the first half of FY23.
It’s going to continue to focus on growing, with a preference for reinvesting its cash generated.
With the Xero share price down 7%, I think this is a very attractive long-term opportunity. It continues to grow, invest for growth, and its profit margins are expected to improve from here. I think it’s looking very promising, even if a couple of statistics weren’t quite as much as the market was hoping today.
