The Xero Ltd (ASX: XRO) share price is under the spotlight after the ASX tech share announced its FY25 first half result.
Xero provides accounting software to small and medium businesses around the world.
Xero FY25 first half result
Here are some of the highlights from the HY25 result for the six months to September 2024:
- Subscribers increased 6% to 4.19 million
- Operating revenue rose 25% to $996 million
- Annualised monthly recurring revenue (AMRR) soared 22% to $2.16 billion
- Gross profit margin improved 1.4 percentage points to 88.9%
- EBITDA soared 51% to $311.7 million
- Net profit after tax (NPAT) soared 76% to $95 million
- Free cashflow jumped 96% to $208.7 million
During this period the business removed a large number of “long idle” subscriptions, which are ones that have been “undeployed for more than 24 months and were not expected to be deployed in a reasonable timeframe.” These subscriptions were low value and largely located in the international segment.
Excluding those removed subscriptions, underlying subscribers grew by 10.2% (or 186,000), with 9.5% growth in ANZ and 11.1% growth internationally. The overall subscriber churn was 1%, with just 0.79% churn in ANZ.
Including the impact of the removal of long idle subscriptions, Xero’s average revenue per user (ARPU) grew by 15% to $43.08.
During the period, Xero launched ‘tap to pay’ in the Xero Accounting mobile app, the first major cloud account platform to offer this – enabling Australian and UK small businesses to accept instant payments from their smartphone.
It also launched the beta product Just Ask Xero, a generative AI-powered smart business companion.
Xero recently announced plans to acquire Syft Analytics to accelerate insights, advanced report and analytics offerings for Xero customers globally.
Outlook for the Xero share price
Xero said it believes it has the opportunity to double the size of its business while becoming more profitable over time. It’s looking to be more balanced between subscriber growth and ARPU expansion.
The company expects its total operating expenses as a percentage of revenue to be around 73% in FY25. FY25 product design and development costs as a percentage of revenue is now expected to broadly similar to FY24.
I’d call Xero one of the leading businesses on the ASX, though it’s certainly priced for its quality as well. How much can it keep growing? It’ll need to justify the expectations over time. If subscriber numbers and ARPU keeps rising strongly, I don’t see why the ASX tech share can’t keep outperforming the market over the next three-year period.
However, there are other ASX growth shares that could be a better choice if they have more growth potential or a cheaper price.
