Xero share price dives despite 90% half-year earnings boost

Xero's shares are taking a tumble today despite the company swinging into the profit zone.

| More on:

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 Ltd (ASX: XRO) share price is tumbling today.

Shares in the S&P/ASX 200 Index (ASX: XJO) tech stock closed yesterday trading for $14.72. In early morning trade on Thursday, shares are swapping hands for $108.74, down 5.2%.

For some context, the ASX 200 is up 0.3% at this same time.

This comes following the release of the business and accounting software provider's half-year results for the six months ending 30 September (H1 FY2024).

Despite some strong results, ASX 200 investors are hitting the sell button on Xero shares today. Expectations were high for the tech stock, following on a year of rocketing share price gains and promises from newly appointed CEO Sukhinder Singh Cassidy to make the company profitable and not pursue growth at any cost.

Read on for the highlights.

(*Note, all figures quoted below are in New Zealand dollars.)

Man ponders a receipt as he looks at his laptop.

Image source: Getty Images

Xero share price drops despite swing to profit

The Xero share price is sliding despite the company reporting a 21% year on year increase in operating revenue (20% in constant currency) to $800 million.

And earnings before interest, taxes, depreciation and amortisation (EBITDA) reached $206 million, up 90% from H1 FY2023.

The half-year also saw the company swing into the profit zone. Net profit after tax (NPAT) came in at $54 million, up from a net loss of $16 million in H1 FY2023.

Free cash flow increased year on year to $107 million, with a free cash flow margin of 13.3%.

As you'd suspect from these numbers, the company saw a big uptick in subscribers, with 3.95 million total subscribers as at 30 September representing a 13% year on year increase. This helped drive a 19% lift (22% in constant currency) in annualised monthly recurring revenue to $1.8 billion (22% in CC).

"We've demonstrated good momentum this half," CEO Sukhinder Singh Cassidy said of the strong results which have failed to lift the Xero share price today.

Singh Cassidy added:

As we look forward, we're sharpening our focus on Xero's key levers of growth as we aspire to become a higher performing SaaS company. We will continue to balance growth and profitability, while delivering more value to our customers.

What's next for the ASX 200 tech share?

Looking to what could impact the Xero share price in months ahead, management said that –  atop reinvestment in the company's strategic priorities – they are targeting an operating expense to operating revenue ratio in FY 2024 of around 75%.

That's down from an operating expense to operating revenue ratio of 79.1% in H1 FY2024 and down from 83.9% in H1 FY2023.

"The opportunity ahead is significant, and we remain focused on being the world's most insightful and trusted small business platform," said Singh Cassidy.

Xero share price snapshot

With today's big fall factored in, the Xero share price is still up a very healthy 55% in 2023.

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. 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 man lays on a tennis court exhausted.
Technology Shares

Why are Catapult shares tumbling 13% on Monday?

The trading update aimed at lifting annual contract value appears to have made investors wary.

Read more »

A man rests his chin in his hands, pondering what is the answer?
Technology Shares

What's going on with BrainChip shares today?

The market doesn't appear sure about a deal announced today.

Read more »

busy trader on the phone in front of board depicting asx share price risers and fallers
Technology Shares

Got $5,000 to invest? Here are 2 ASX tech stocks to buy today

Trading well below recent highs and backed by strong tailwinds, they deserve a closer look.

Read more »

Army man and woman on digital devices.
Technology Shares

What is Bell Potter saying about DroneShield and EOS shares this week?

The broker has given its verdict on these two popular shares.

Read more »

A woman looks quizzical as she looks at a graph of the share market.
Technology Shares

Hub24 vs Netwealth: Which ASX tech stock is the better buy now?

Both rivals are expanding, but one faster than the other.

Read more »

Smiling couple looking at a phone at a bargain opportunity.
Technology Shares

3 bargain ASX tech shares I'd buy right now

Tech shares have sold off, but that could be creating opportunities.

Read more »

defence personnel operating and discussing defence technology
Technology Shares

Why EOS shares are tumbling 11% today as investors weigh a key defence catalyst

EOS shares fall 11% as investors await a key contract update.

Read more »

Buy and sell written on a white cube.
Technology Shares

Why this top fundie is tipping Life360 shares for outsized gains

A leading fund manager believes Life360’s beaten-down shares could be set for a large rebound.

Read more »