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XRO - Xero Limited

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Xero half-year loss widens to $NZ16m, former Google president Sukhinder Singh Cassidy named new CEO

Xero shares have dropped to a one-year low as the cloud accounting giant’s interim loss blew out to $NZ16m ($14.5m) and it surprised the market by naming a successor to chief executive Steve Vamos.

Sukhinder Singh Cassidy, a former Asia Pacific and Latin America president of Google, will succeed Mr Vamos as chief executive, beginning the transition late this month. Mr Vamos will finish up on February 1 after five years in the role, returning to business coaching, according to Xero.

“There are huge opportunities in front of us and I’m committed to building on the businesses great momentum already in line with Xero’s values,” Ms Singh Cassidy told investors on Thursday.

The CEO news came as the company recorded a net loss of $NZ16.1m for the six months to September 30, up nearly threefold from its loss of $NZ5.9m a year earlier.

The company’s operating profit dropped 62 per cent to $6.4m, from $16.9m in the previous year.

Xero’s operating revenue jumped 30 per cent to $NZ658m, but its operating expenses soared 31 per cent to $NZ552m.

Analyst at Wilsons Equity Research said the costs of the company’s three XeroCon accounting conferences events were reflected in increased operating revenue.

The company’s earnings before interest, tax, depreciation and amortisation lifted 11 per cent to $NZ108.5m with a margin of 16.5 per cent.

Australia and New Zealand is responsible for the majority of Xero’s operating revenue, making up $NZ377.8m, compared to other countries which account for $NZ280.6m. That includes the UK at $NZ174m, North America at $NZ43m and other countries which make up $NZ62m.

ANZ subscribers have jumped 17 per cent this year, now at 2 million, making up the majority of the company’s 3.49m paying subscribers. UK subscribers rose 14 per cent to about 894,000, North America subscribers jumped 15 per cent to 354,000 and other international subscribers rose 20 per cent to 242,000.

Those numbers beat forecasts from the Royal Bank of Canada, which had expected a subscriber drop in the UK on the back of its government’s Making Tax Digital policy.

Capital Markets analyst Garry Sherriff said much of the reported figures were in line with RBC’s consensus. However, subscription numbers in the UK and US were down between 3 and 5 per cent, lower than expected. Rest of World subscriptions were 9 per cent lower than expected and revenue was 5 per cent lower.

UBS’s Lucy Huang described the results as “a miss”, with key international markets underperforming and EBITDA down due to reinvestment.

Ms Huang said UBS sought more commentary on subscriber figures to determine whether a structural or timing issue was responsible.

Shares in Xero fell 10.8 per cent to $64.77 in morning trade, cutting its market capitalisation to $9.75bn.

The share price drop fell in line with E&P managing director Paul Mason’s expectation, as he warned that a new CEO could be taken negatively.

“Our best guess at this point is that the stock will have some downward pressure today. Steve Vamos retiring is also a surprise, and likely to be taken more negatively initially,” he said.

JOSEPH LAMREPORTER
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Was looking at the ASX announcements for something to do this morning before I head out and came across this; 800 jobs to go.

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up 7%..interesting PE at 805..
yeap based on BD...especially considering they have a saturation of the aussie market, but I am sure they will move to the UK or US and be a great success as so many aussies firm before ;-)
 
Nice jump yesterday.

Xero shares were up 8.7 per cent to $102.20 in a higher market on Thursday afternoon. Its shares are up 15.5 per cent over the past 12 months.​

Xero shares jump on outlook hopes​

Shares in cloud accounting software maker Xero jump on Thursday despite ballooning losses and hefty writedowns of its Planday and Waddle operations, with the company lifting its subscriber count and monthly recurring revenue.
The ASX-listed group’s annual net losses snowballed to $NZ113m ($106m) from a net loss of $NZ9m a year earlier for the 12 months ending March 31.
The Wellington-based company shed 15 per cent of its staff – around 800 jobs – in March amid the tech downturn, and reported restructuring costs of $NZ34.7m for the year.
Annualised monthly recurring revenue, a key metric for cloud software firms, grew 26 per cent year-on-year to $NZ1.55bn, revenue was up 28 per cent to $NZ1.4bn while average revenue per user was up 10 per cent to $NZ346.
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Still climbing, very nice. I signed up my business to Xero last year because the accountant recommended it, after using it for about 4 months I could see the benefits for all businesses. And that is what made me decide to purchase some shares to test the waters. At first the price fluctuated up and down, but it always recovered. More than happy with the news coming out, and with the software.

Up 59% this year, I think the Xero share price can keep climbing in 2023​

I’m backing this ASX tech share to keep outperforming the ASX 200.

’ve been confident about Xero’s recovery for a while now. It has gone up a long way since my optimistic call in March on the ASX growth share, but I believe the business can keep performing from here.

I’m going to explain why I believe it can beat the ASX 200 over the rest of this year and hopefully outperform up until 2030 as well.

Strong subscriber metrics​

One of the main things that is helping drive Xero forwards is its growth of subscriber numbers. Those subscribers are paying the ASX tech share a monthly subscription fee, providing predictable cash flow.

The technology company is seeing a number of positive metrics with its subscribers, which I expect will continue in the first half of FY24, which can help drive the Xero share price.

The FY23 result saw total subscribers rise by 14% over the year to 3.74 million. It’s achieving strong organic growth with the average revenue per user (ARPU) increasing by 10% to $34.61.

Xero’s subscriber churn in FY23 was very low at just 0.90%, meaning its subscribers are very loyal (which allows the company to increase its subscription prices with little negative effect).

All of the above elements combined led to the total lifetime value of subscribers increasing by 23% to $13.4 billion.

Good revenue and gross profit margin​

Businesses that are growing revenue at a good pace are growing their scale and that can help the business spend more on other activities like market, research and development, which is a very positive cycle.

Xero’s revenue is growing very quickly – in FY23 it saw 28% growth thanks to more subscribers and a higher ARPU.

The company has one of the highest gross profit margins on the ASX, which means that a lot of the new revenue also turns into gross profit, which can then be utilised by the business to spend more and/or become more profitable. In FY23, Xero’s gross profit margin was 87.3%.

I’m expecting Xero’s gross profit to keep climbing strongly in the coming years thanks to the subscriber growth.

Expectations of stronger profits in the coming years​

One of the most exciting things to me about the potential for the Xero share price is that the company is planning to become much more profitable.

Increasing the size of the business usually comes with scale benefits, but management is now deliberately choosing for the business to become more profitable. The company is targeting an operating expense to operating revenue ratio in FY24 of around 75%.

The operating expense ratio to operating revenue ratio was 80.7% in FY23, so the next year could show a big improvement in profitability.

As the business continues to become bigger, I think the expense to revenue ratio can continue to improve, which will show the market how profitable the underlying operations truly are, which could impress the market and send the Xero share price even higher, in my opinion.
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XRO sitting on $179mill in cash, with $105mill generated in the last year.
The bosses reckon its due to focus on profitability rather than growth.
Sounds like an excellent strategy.
So what are they going to do with this abundance of cash, especially if 100mill a year becomes the norm?
Not sure whether I want to put money into it or not.
Mick
 
Its certainly a good result, but the "cash" is not what it seems! Nearly half of it is Share Based Compensation, so not actually FCF at all.
 
mullokintyre said:
XRO sitting on $179mill in cash, with $105mill generated in the last year.
The bosses reckon its due to focus on profitability rather than growth.
Sounds like an excellent strategy.
So what are they going to do with this abundance of cash, especially if 100mill a year becomes the norm?
Not sure whether I want to put money into it or not.
Mick
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It's all in the timing. Buy low, sell a few at the high, hold onto the rest. Sometimes it works, sometimes it doesn't, I was lucky to have purchased in May. I'm still positive with XRO but it is still in my other account for trying ideas out.

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Xero dives 10pc on weaker international revenue​

Xero shares dive 10 per cent to a near six-month low of $103.47 as underlying earnings miss estimates disappointing international revenue.

Underlying EBITDA rose 65 per cent year-on-year to NZ$205 million, but missed the Visible Alpha consensus estimate by 7 per cent, according to Citi.

"While operating expense was essentially in-line with expectations – and lower when adjusted for capitalisation – the miss was driven by International revenue missing Citi's estimate by 5 per cent and gross margins coming in about 30bps lower than expected," says Citi analyst Siraj Ahmed.
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Looking forward to May result . Hopefully provide a little clue about future. I am interested to know and pondering about following for Xero.

  1. Will the management's renewed investment focus on the US market yield a durable increase in market share?
  2. How will formidable competitors, particularly Intuit in the US and Sage in the UK, impact Xero's market position and growth trajectory?
  3. Is there sufficient growth potential remaining in the ANZ market, or is Xero nearing market saturation in that region?
  4. How quickly can Xero expand its revenue streams? Does it have the capability to successfully branch out into adjacent markets as effectively as it has in its core accounting sector?
  5. To what extent can management streamline operating costs, specifically in Sales and Marketing, without hindering the company’s growth momentum?
 
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growthgauge said:
Looking forward to May result . Hopefully provide a little clue about future. I am interested to know and pondering about following for Xero.

  1. Will the management's renewed investment focus on the US market yield a durable increase in market share?
  2. How will formidable competitors, particularly Intuit in the US and Sage in the UK, impact Xero's market position and growth trajectory?
  3. Is there sufficient growth potential remaining in the ANZ market, or is Xero nearing market saturation in that region?
  4. How quickly can Xero expand its revenue streams? Does it have the capability to successfully branch out into adjacent markets as effectively as it has in its core accounting sector?
  5. To what extent can management streamline operating costs, specifically in Sales and Marketing, without hindering the company’s growth momentum?
Growthgauge.substack.com
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Good and relevent questions. I think that the company has lots of growth potential, I initially purchased to trade but decided to hold. Your questions have reminded me to have another closer look.
 
growthgauge said:
Looking forward to May result . Hopefully provide a little clue about future. I am interested to know and pondering about following for Xero.

  1. Will the management's renewed investment focus on the US market yield a durable increase in market share?
  2. How will formidable competitors, particularly Intuit in the US and Sage in the UK, impact Xero's market position and growth trajectory?
  3. Is there sufficient growth potential remaining in the ANZ market, or is Xero nearing market saturation in that region?
  4. How quickly can Xero expand its revenue streams? Does it have the capability to successfully branch out into adjacent markets as effectively as it has in its core accounting sector?
  5. To what extent can management streamline operating costs, specifically in Sales and Marketing, without hindering the company’s growth momentum?
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So far, looks ok.

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It is not very often that a CEO follows up with what they promised, Sukhinder is a shining light in the corporate world.

Xero shares surge after profits beat expectations​

Shares in Xero jumped 9 per cent on Thursday after US-based chief executive Sukhinder Singh Cassidy’s year of “foundational change” delivered better-than-expected profits alongside strong revenue growth.

Shortly after stepping into the chief executive role 15 months ago, Ms Singh Cassidy embarked on a restructuring program that cut 750 roles, sold off non-core businesses like Waddle and pushed through price increases.

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Chief executive Sukhinder Singh Cassidy says results show Xero was “doing what we said we’d do”. Louie Douvis

A leaner and more focused Xero delivered an after-tax profit of $NZ174.6 million for the full year ended March 31, compared to a loss of $NZ113.5 million last financial year, beating the average analyst forecast of around $NZ160 million ($148 million).

Reporting her first full financial year as chief executive, Ms Singh Cassidy said Xero had delivered a meaningful increase in profitability, a goal she set for the company after taking over from former CEO Steve Vamos.

“It’s been a year of change at pace and evolution at pace,” Ms Singh Cassidy told The Australian Financial Review.

“We had to reset the cost base, right-size teams and bring in new capabilities including a lot of new executives.”

Ms Singh Cassidy has recruited executives including Uber’s former marketing executive Mike Strickman, Square’s former global sales boss Ashley Grech, and Diya Jolly, Xero’s product and technology chief.

“It was good to get this foundational year of change under our belt and to bring in the capabilities we’re going to need to deliver the future,” Ms Singh Cassidy said.

Xero, which makes payroll and accounting software for bookkeepers and small and medium-sized businesses, added 419,000 subscribers during the year, bringing global subscribers to 4.16 million.

RBC’s Garry Sherriff said the amount of money Xero makes from each user, known as ARPU, delivered solid growth, up 14 per cent to $NZ39.29.

“ARPU should continue to be a strong revenue driver into FY25 on material price increases and plan changes for Australia slated for July (Xero historically raised Australian prices in September),” Mr Sherriff said.

Earnings before interest, taxes, depreciation and amortisation increased by $NZ339 million to $NZ497.4 million while revenue increased 22 per cent to $NZ1.7 billion.

As part of its focus on operational efficiencies, Xero also achieved the “rule of 40” earlier than analysts had expected. The rule of 40 is an important measure for subscription software businesses. It says a company’s revenue growth plus profitability (both in percentage points) should add up to 40 or more.

E&P Capital analyst Paul Mason called the results a “relatively strong beat” to overall consensus expectations.

“Revenue is marginally ahead [of Visible Alpha consensus] however [underlying] EBITDA has come in well ahead at $NZ527 million vs VA consensus $NZ469 million,” Mr Mason said. “Xero is also reporting that they hit the rule of 40 on combined revenue growth and free cash flow margin – much earlier than the market was expecting.”

The $20 billion company did not declare a dividend, but shares rose 9 per cent to $135.64. Including Thursday’s rally, shares are up nearly 20 per cent so far this year but are still trading below their pandemic peak of $154.

Last month Xero invested $US25 million ($37 million) in Sydney-born start-up Deputy, a $1 billion private company that provides software for shift workers. As part of the partnership, Xero will discontinue its Planday business in Australia and instead plug Deputy into its payroll and accounting platform to monitor employee shifts.

Ms Singh Cassidy said Planday would focus on its home market in Europe, including the UK, and the investment in Deputy would strengthen the partnership with the shift homegrown start-up.

“Sometimes a minority investment just helps put a little bit more alignment behind the partnership. We’re not on the board, we’re not an observer … we believe it’s important also to have a bit of skin in the game,” she said.
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