Xero share price on watch amid major cost cutting plans

Xero has announced plans to build a higher performing global SaaS company.

| More on:
A man packs up a box of belongings at his desk as he prepares to leave the office.

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

Key points

  • Xero has announced plans to cut its operating costs materially
  • This will involve some major job losses, with management aiming to reduce its workforce by approximately 16%
  • The company is also exiting a business it acquired in an $80 million deal three years ago

The Xero Limited (ASX: XRO) share price will be one to watch closely on Thursday.

This follows the release of a major announcement out of the cloud accounting platform provider.

Why is the Xero share price on watch?

This morning, Xero announced a program to streamline its operations, realign the business to drive greater operating leverage, and better balance its growth and profitability. Management believes this will strengthen the company's ability to deliver value to customers and take advantage of the significant growth opportunity presented by cloud accounting.

Unfortunately, this will involve significant job losses, with Xero revealing that the program involves reshaping Xeroʼs organisational structure by reducing 700-800 roles across its business. This represents upwards of 16.3% of its 4,915 full time equivalent employees.

Management expects these headcount reductions to improve Xeroʼs operating profitability by reducing its operating expense to revenue ratio significantly in FY 2024. Along with its reinvestment into strategic priorities, the company is targeting an operating expense to revenue ratio of approximately 75% in FY 2024.

As a comparison, during the first half of FY 2023, Xero reported a ratio of 83.9%. And for the full year, management still expects its ratio to be towards the lower end of its guidance range of 80% to 85%.

However, this guidance excludes restructuring charges associated with the program, which are expected to be in the range of NZ$25 million to NZ$35 million.

Xero's CEO, Sukhinder Singh Cassidy, said:

We have made strong progress in executing our strategy. However as we aspire to build a higher performing global SaaS company and to enable Xeroʼs next phase of growth and drive better customer outcomes, we need to streamline and simplify our organisation.

These changes, and our decision to reinvest in key strategic areas, will adjust our operating cost base as we balance growth and profitability, while taking a robust approach to capital allocation that supports long term value creation.

Waddling off

The company has also revealed that it plans to exit cloud-based lending platform Waddle, which was acquired in 2020 in a deal valued at A$80 million.

Management advised that it expects to incur a write down of NZ$30 million to NZ$40 million in FY 2023 as a result of this decision. However, it has stressed that it remains committed to its broader small business platform strategy.

Singh Cassidy added:

These are difficult but necessary steps as we work to further strengthen Xero for the future, while carefully balancing the interests of all our stakeholders. We don't take these decisions lightly and we recognise today is a very hard day for our people.

Todayʼs announcement does not take away from the significant contributions from everyone at Xero. We take our purpose and values seriously, and are committed to working closely with each impacted employee and providing them with the right level of support.

The Xero share price is down 19% over the last 12 months. Shareholders will no doubt be hoping the market responds kindly to its cost cutting plans.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for over ten years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the 'five best ASX stocks' for investors to buy right now. We believe these stocks are trading at attractive prices and Scott thinks they could be great buys right now...

See The 5 Stocks *Returns as of 3 April 2025

Motley Fool contributor James Mickleboro has positions in Xero. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Xero. The Motley Fool Australia has positions in and has recommended Xero. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Technology Shares

A female engineer inspects a printed circuit board for an artificial intelligence (AI) microchip company.
Technology Shares

Pro Medicus shares rise on big AI news

Let's see what exciting news this market darling has unveiled today.

Read more »

A bland looking man in a brown suit opens his jacket to reveal a red and gold superhero dollar symbol on his chest.
Technology Shares

Top broker says DroneShield shares are a buy

Big returns could be on offer for buyers of this stock according to Bell Potter.

Read more »

American soldier in military uniform using laptop for drone controlling.
Technology Shares

DroneShield share price soars 12% on $32 million military deal

DroneShield shares are racing ahead of the benchmark on Monday.

Read more »

A man analyses stockmarket graph on his computer.
Share Market News

ASX 200 experiences only a minor fall after a tremendously volatile week

The ASX 200 ended a tumultuous week just 0.28% down amid many Aussie investors buying the dip.

Read more »

Ecstatic man giving a fist pump in an office hallway.
Technology Shares

Here's how WiseTech is rewarding its shares investors today

WiseTech shares have survived the recent market turmoil well, and today there is more good news.

Read more »

Robot hand and human hand touching the same space on a digital screen, symbolising artificial intelligence.
ETFs

Invest in future technology with these exciting ASX ETFs

These funds could be worth a look if you want exposure to AI, robotics, and electric vehicles.

Read more »

A woman sits at her computer with her chin resting on her hand as she contemplates her next potential investment.
Technology Shares

Surging earnings and a slumping share price: Should I buy this ASX 200 tech stock today?

With profits and earnings soaring and shares down in 2025, is this ASX 200 tech stock too good to ignore?

Read more »

A bland looking man in a brown suit opens his jacket to reveal a red and gold superhero dollar symbol on his chest.
Technology Shares

Guess which ASX tech stock is jumping 10% on strong update

It has been another impressive quarter for this tech star.

Read more »