ASX accounting software developer Xero Limited (ASX: XRO) has been one of the top-performing shares to own over the past 12 months. In that time, the Xero share price has risen well over 50% (to $147.89, as at the time of writing). With a market cap of almost $22 billion, it is now larger than ASX stalwarts like REA Group Limited (ASX: REA) and Woodside Petroleum Limited (ASX: WPL).
Let's take a quick look under the hood to see what has got the Xero share price zooming higher over the past year.
Company background
Xero develops cloud-based software that helps small and medium-sized business manage their day-to-day accounting. Xero's platform allows users to perform a range of vitally important tasks, such as generating invoices and purchase orders, tracking payments, managing payroll, and calculating GST returns. The software can also create insightful reporting and analysis on the business' performance.
Xero operates a software-as-a-service (SaaS) business model. This means that, instead of selling the software itself, Xero sells licenses that grant users remote access to their platform. SaaS is facilitated by cloud technology, and is a very popular business model amongst many new and emerging ASX software companies, like Whispir Ltd (ASX:WSP), WiseTech Global Ltd (ASX:WTC), and Dubber Corp Ltd (ASX:DUB).
Because the COVID-19 pandemic has forced so many companies to adopt remote-working arrangements, SaaS products have become more popular recently. Having these sorts of software platforms located in the cloud helps ensure employees can access them from wherever they are working, and it also means business data can be kept safe and secure.
This is particularly important for small to medium-sized businesses that may lack the resources and digital infrastructure necessary to support remote-working arrangements.
Recent financials
Because Xero is headquartered in New Zealand, it reports based on a financial year ending 31 March, which means it released its FY21 results to the market back in May.
Xero reported strong results across the board, with operating revenue up 18% year-on-year to NZ$848.8 million, supported by a 20% uplift in subscriber numbers (to 2.74 million). Net profit after tax (NPAT) increased by NZ$16.4 million year-on-year (or a whopping 493%).
Commenting on the result, Xero CEO Steve Vamos spoke about how Xero was supporting small businesses to navigate the many challenges of the pandemic. He said:
The past year has brought home to many people in small business the need to understand in real-time their financial position and how it may change. The value and importance our customers place on their subscription and connection to the broader Xero community is increasing.
Recent movements in the Xero share price
The Xero share price declined sharply just prior to the release of the company's FY21 results – but since then it has again rallied strongly. As at the time of writing, the Xero share price is just 6% shy of the 52-week high price of $157.99 it reached in December.
