Xero flexes pricing power as profits soar 76%
The accounting tech giant’s shares hit a record high after latest earnings showed strong demand for its software despite price hikes.
Xero has posted a first-half net profit gain of 76 per cent driven by price increases and new subscribers, in a sign that small businesses users are willing to accept higher costs for its popular accounting software.
The tech giant’s profit for the period ended September climbed to NZ$95 million and operating revenue grew 25 per cent to $995 million. Earnings before interest, taxes, depreciation and amortisation were $311.7 million for the period.
The result, announced Thursday, lifted the New Zealand-based company's share price up 7 per cent to a record $172.63.
Xero said price changes across core accounting products boosted its average revenue per user.
The metric increased by 22 per cent ($394.6 million) to $2.2 billion across the total Xero group, with $1.2 billion coming from its Australia New Zealand market.
Excluding the removal of idle subscriptions, Xero also ended the period with 186,000 new subscribers, bringing its total user base to 4.2 million, a 6 per cent rise from a year earlier.
The strong growth in revenue and subscribers comes despite users threatening to switch to competitors after its price increases were announced earlier in the year.
Changes to the pricing of its accounting plans included the Standard Plan increasing from AU$65 to $70 a month.
Xero also removed its cheapest plan, Payroll Only, meaning small businesses with payroll tasks would need to fork out $90 a month for its Comprehensive Plan.
Chief executive Sukhinder Singh Cassidy said the results showed the company was delivering on its “Win the 3x3 strategy” of core accounting, payments and payroll customers in Australia, the UK and the US – its three largest markets, worth around $43 billion.
“We have delivered a solid performance across the board this half including continued strong revenue growth,” she said.
“We're executing our strategy with focus and purpose, through disciplined investment aligned to our strategic priorities.”
Xero cited its acquisition of South African cloud-based reporting platform Syft Analytics in a deal worth up to US$70 million as “an example of where Xero has used purposeful M&A to accelerate its Win the 3x3” strategy.
Double-digit growth also supported the launch of new products, Singh Cassidy said.
“This has supported an improvement in product velocity for customers in line with our 3x3 strategic priority to build winning solutions for the three most critical small business jobs in our three largest markets,” she said.
In Australia and the UK, Xero launched “Tap to Pay” in the Xero Accounting mobile app, allowing small businesses to accept instant payments from their smartphone.
Xero also upgraded its software by adding a ChatGPT-like bot called Just Ask Xero (JAX), a payroll manager dashboard giving customers a consolidated view of payroll data and a new embedded bill payment solution for US customers.
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