Xero (ASX:XRO) share price hits record high after delivering strong first half growth

The Xero Limited (ASX: XRO) share price is on the rise today after the release of its half year results…

| More on:
xero share price

Source: Xero

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Xero Limited (ASX: XRO) share price is charging higher following the release of its half year update.

In morning trade the cloud-based business and accounting platform provider's shares are up almost 7% to a record high of $130.95.

How did Xero perform in the first half?

For the six months ended 30 September, Xero continued its positive form despite the challenging COVID-19 environment.

Management feels that this demonstrate the resilience of its global subscriber base and its proactive response supporting customers and partners.

During the half, the company's operating revenue grew 21% over the prior corresponding period to NZ$409.8 million. This was a 19% increase in constant currency.

This led to Xero's annualised monthly recurring revenue (AMRR) growing 15% to NZ$877.6 million.

A key driver of this growth was a 19% increase in total subscribers to 2.45 million. Management advised that all markets made positive progress and Australia became Xero's first market to pass one million subscribers.

And while there was some volatility in churn during the half, overall reported MRR churn was consistent at 1.11%.

One key metric of interest for investors is the company's total subscriber lifetime value (LTV). This increased 15% over the prior corresponding period to NZ$6.2 billion. It is also up 12.7% since the end of FY 2020.

What about earnings and free cash flow?

Operating leverage was on display for all to see in the first half of FY 2021.

Despite revenue increasing 21%, Xero's earnings before interest, tax, depreciation and amortisation (EBITDA) increased by an even greater 86% to NZ$64.9 million.

Things were even better on the bottom line, with Xero's net profit after tax coming in 26 times greater than the prior corresponding period at NZ$34.5 million.

Also growing strongly was the company's free cash flow, which came in at NZ$54.3 million for the half. This is up from NZ$4.8 million a year earlier.

Management advised that its strong earnings and free cash flow growth reflects Xero's disciplined financial management during a highly uncertain period. This approach contributed to a 10% reduction in sales and marketing costs when compared to the prior corresponding period.

And while uncertainty from COVID-19 is likely to remain, management expects Xero's focus on long-term growth, combined with a return to more normal market conditions, to lead to a return to sales and marketing cost growth in the future.

Management commentary.

Xero's CEO, Steve Vamos, commented: "This result demonstrates the value our customers attribute to their Xero subscription and the underlying strength of Xero's business model. We continue to prioritise investment in customer growth and product development in line with the long term opportunity we see."

"Subscriber growth was positive in all geographies, with stronger net subscriber additions in Australia and New Zealand with relatively less disruption in those markets from COVID-19. During a difficult period, it's pleasing to report we grew to exceed one million subscribers in both Australia and in our International segment," he added.

Outlook.

Management notes that Xero is a long-term oriented business with ambitions for high-growth.

It continues to operate with disciplined cost management and targeted allocation of capital. It feels this allows it to remain agile so it can continue to innovate, invest in new products and customer growth, and respond to opportunities and changes in the operating environment.

However, due to the continued uncertainty created by COVID-19, it believes it is speculative to provide further commentary on its expected FY 2021 performance at this time.

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Xero. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Share Market News

Doctor doing a telemedicine using laptop at a medical clinic
Healthcare Shares

3 small-cap ASX healthcare shares 'with strong prospects'

Fund manager IML discusses why these 3 ASX healthcare shares are likely to rise in value.

Read more »

Magnifying glass on a rising interest rate graph.
Share Market News

Will the RBA finally cut interest rates next week?

Let's see what economists are saying about the central bank's meeting.

Read more »

A couple sits on a sofa, each clutching their heads in horror and disbelief, while looking at a laptop screen.
Share Gainers

Here are the top 10 ASX 200 shares today

Investors endured a rough Friday to close the trading week today.

Read more »

a man wearing old fashioned aviator cap and goggles emerges from the top of a cannon pointed towards the sky. He is holding a phone and taking a selfie.
Broker Notes

7 ASX All Ords shares elevated to 'strong buy' status in October

The brokers turned bullish on these ASX companies last month.

Read more »

A businessman compares the growth trajectory of property versus shares.
Share Market News

How ASX shares vs. property performed in October

The national home value rose for the 21st consecutive month while the ASX 200 dipped.

Read more »

Person with thumbs down and a red sad face poster covering the face.
Share Fallers

The worst 3 ASX 200 stocks to buy and hold in October unmasked

You would have done well to avoid these three ASX 200 stocks in October.

Read more »

A female Woolworths customer leans on her shopping trolley as she rests her chin in her hand thinking about what to buy for dinner while also wondering why the Woolworths share price isn't doing as well as Coles recently
52-Week Lows

Why is the Woolworths share price at its lowest point since 2020?

We haven't seen Woolies shares this low since COVID.

Read more »

A man sits in despair at his computer with his hands either side of his head, staring into the screen with a pained and anguished look on his face, in a home office setting.
Share Fallers

Why AFT, Amcor, Corporate Travel, and Macquarie shares are falling today

These shares are ending the week in the red. But why?

Read more »