Why is the Xero (ASX:XRO) share price down 19% in 2021?

The Xero (ASX: XRO) share price has had a rough start in 2021, falling by around 19%, even as vaccines start to roll out. What's the story?

| More on:
wondering about asx share price represented by man surrounded by question marks

Image source: Getty Images

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

It has certainly been a rough start to the year for Xero Limited (ASX: XRO) shares. After rocketing 84% higher in 2020, the Xero share price has been steadily drifting back to earth so far in 2021.

In fact, Xero shares have slumped by more than 19% in just two months. This is almost two-thirds as much as the company fell by during the COVID-19 induced panic which bottomed out on 23 March last year.

What's dragging down the Xero share price?

The timing of the slump in the Xero share price does seem odd. Vaccines are being rolled out at a rapid rate and new cases of COVID-19 in the United Kingdom and United States have been plunging. In fact, we have never been closer to an end to the pandemic. Surely this would be good news for Xero's small business customers?

With no material company announcements in 2021, one possible factor dragging down the Xero share price is the prospect of rising interest rates. As economic activity starts to pick up again, we are likely to see some of the emergency measures used to keep the economic heart beating being eased. This means we could be waving good-bye to record low interest rates.

Rising interest rates can be bad news for a company's share price because future earnings get discounted at a higher rate, reducing its fundamental value.

Another possibility for the drift lower is simply that the Xero share price got caught up with the post-COVID tech rally and the market got ahead of itself. This was amplified when Xero was added to the MSCI Global Standard Index late last year, boosting interest in the company.

Should you be worried?

Neither factor, interest rate worries or shifting investor sentiment, is really related to how Xero's business is performing. Is Xero likely to see lower subscriber growth because of COVID-19? Absolutely, but that is not new information.

In the six months to September 2020, Xero announced it had slashed spending on advertising and marketing in response to the pandemic which would slow growth. Even then, Xero added 168,000 new subscribers during the period and grew free cash flow from NZ$4.8 million to NZ$54.3 million.

It's worth remembering too that in the five years to 31 March 2020 Xero was able to grow revenue at a compound annual growth rate of 36%! Xero's full-year FY21 results are due to be released on 13 May 2021 and investors will be paying keen attention to how the company plans to revive growth again for the years ahead.

Should you invest $1,000 in Brickworks Limited right now?

Before you buy Brickworks Limited shares, consider this:

Motley Fool investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Brickworks Limited wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

And right now, Scott thinks there are 5 stocks that may be better buys...

See The 5 Stocks *Returns as of 30 April 2025

Motley Fool contributor Regan Pearson owns shares of Xero. You can follow him on Twitter @Regan_InvestsThe Motley Fool Australia owns shares of Xero. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Technology Shares

group of traders cheering at stock market
Technology Shares

What drove a 10% surge in ASX 200 tech shares last week?

The ASX 200 roared to a 2-month high on Friday, with tech shares leading the 11 market sectors last week.

Read more »

A man slumps crankily over his morning coffee as it pours with rain outside.
Technology Shares

Why is the Block share price crashing 33%?

This payment giant's shares are being hammered today. But why?

Read more »

A young man pointing up looking amazed, indicating a surging share price movement for an ASX company
Technology Shares

These ASX 200 tech stocks could rise 20% to 35%

Goldman Sachs is tipping these shares to rise strongly from current levels.

Read more »

A corporate team or board stands together and looks out the window.
Technology Shares

WiseTech shares charge higher on $3.5b acquisition news

This tech stock is ending the week positively. But why?

Read more »

A man leans forward over his phone in his hands with a satisfied smirk on his face although he has just learned something pleasing or received some satisfying news.
Technology Shares

3 reasons to buy this $25 billion ASX 200 tech stock today

A top expert forecasts more outperformance from this fast-growing ASX 200 tech stock.

Read more »

Lines of codes and graphs in the background with woman looking at laptop trying to understand the data.
Technology Shares

Why is the Brainchip share price crashing 9% today?

The semiconductor company is being sold off on Tuesday. But why?

Read more »

A man with a wide, eager smile on his face holds up three fingers.
Technology Shares

3 reasons this sold-off ASX 200 share is primed for a big rebound

A leading expert believes this ASX 200 share is well placed to outperform.

Read more »

a man surrounded by huge piles of paper looks through a magnifying glass at his computer screen.
Technology Shares

I did some research on Siteminder — Here's what you should know

The big questions I'm monitoring for answers.

Read more »