Xero to ride its FY24 success into AI-driven future
While the accounting software provider’s CEO has been pitted as taking a cautious approach to generative AI, the company’s vision for FY25 and beyond will put the tech front and centre.
After releasing better-than-expected financial results for the full year ended March, cloud-based accounting platform Xero recorded a 9 per cent jump in share value on Thursday alone. As of writing on Friday, the hike has mediated slightly, now sitting 6.8 per cent above its Wednesday close.
At a glance, the company’s operating revenue grew by nearly a quarter (22 per cent) year on year to AU$1.58 billion thanks to almost half a million new subscribers (now 4.16 million) and 14 per cent growth in average per-user revenue.
The strong performance has been tied to the restructuring efforts of CEO Sukhinder Singh Cassidy, who took the position 15 months ago. As part of those efforts, the company shed 750 roles, sold off certain non-core limbs including invoice financing provider, Waddle (since scooped up by CBA), and undertook a pricing revamp.
Xero also secured a ‘rule of 40’ outcome – a growth metric applied to software-as-a-service companies that investors prize for its rarity.
To achieve the rule of 40 outcome, a company’s growth rate, when added to its free cash flow rate, should be equal to or higher than 40 per cent. According to McKinsey, barely one-third of SaaS companies achieve it.
“The rule has become a favourite of SaaS industry watchers, including boards and management teams because it neatly distils a company’s operating performance into one number,” said McKinsey.
In Xero’s ASX statement, Singh Cassidy said the result demonstrated the company’s “commitment to balancing growth and profitability.”
“We have a clear and focused strategy to win on purpose, and Xeri is positioned well as we move into FY25.”
Asked whether the company was taking a relaxed approach to generative AI given the tech’s relative infancy, a spokesperson said: "Xero is no stranger to AI."
“AI already powers a range of products across Xero, including bank reconciliation predictions, Hubdoc data capture, Xero Expenses, and cash flow forecasting in Xero Analytics.”
Responsible AI is at the heart of the company’s plans for the future. A spokesperson told Accounting Times the company takes a “strategic view” of AI investments.
“It's not solely about shipping lots of AI features - it’s about putting the customer first and focusing on where AI can truly be useful and up-levelling our capabilities to put the power of AI into their hands, in a way that’s easy for customers to use and that can help make a positive difference to their lives,” the spokesperson said.
At the company’s inaugural Investor Day earlier this year, chief product officer Diya Jolly announced a new AI business companion for small businesses and their advisers.
‘Just Ask Xero,’ or JAX, will be launched in beta this calendar year to assist advisers in automating accounting tasks and delivering personal insights.
“As we learn more about how our customers are using JAX, and getting value from it, we'll take those learnings and evaluate how we might realise the value JAX is delivering to our customers. More broadly, as we progress further we will evaluate the right way to recognise the value our new AI products generate for customers,” the spokesperson said.
“Like all our products, our AI tools are built to the same high security and privacy standards - to ensure we protect our customers to the same standard as the products they’ve come to love and use. And we will continue to secure our data to maintain our responsibility as a trusted platform for our customers.”
Alongside the product offerings, the AI vision includes a suite of strategic talent hirings, crowned by two recent US hires from Amazon and Uber.
“We’re putting the right global experience, strategy, data and partnerships in place to harness the power of AI while making sure our tools remain grounded in truth,” Jolly said.
Xero outlined several “product highlights” over FY24, including launching auto sales tax in the US, expanding its bank feeds, and launching the “single client record.”
It also created two new UK products and last month announced a strategic partnership with workforce management provider, Deputy, for Australian customers.
