Xero’s Share Price Rises 9.56% despite Net Loss

Business cloud-based accounting and bookkeeping software company Xero Ltd [ASX:XRO] has continued its stellar run this year, tacking on 9.56% in early trading this morning to trade $5.19 higher at $59.50 per share.

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The New Zealand based software company watched its share price suffer towards the end of 2018 as markets were depressed by international trade wars and a poor earnings season. But Xero has managed to recover from its losses and is over 49% higher since the beginning of the year.

Xero's share price

Source: Trading View

What’s happened to Xero’s share price?

Despite posting a net loss 9% higher than last year’s, Xero has provided investors with good news in its annual report, which has caused the share price to move higher.

Subscription revenue — which is XRO’s main source of revenue — increased by 35% on a year-over-year (yoy) basis to $538 million. Total operating revenue increased by 36% while operating expenses grew proportionately less at 28%, signifying some scaling efficiencies.

But the big point in today’s annual report release is the increase in Annualised Monthly Recurring Revenue (AMRR), which is basically the total value of their monthly subscription revenue per year. AMRR was 32% higher at $638 million.

The increase in AMRR was complemented nicely by positive trends in Xero’s customer lifetime value (LTV). LTV was up 4% to $2,398 per subscriber — putting total subscriber lifetime value at $4.4 billion for 2019.

Subscriber count increased by more than 430,000 yoy for a total of 1.8 million subscribers globally. While ANZ is still the company’s largest market in terms of total subscribers, the UK grew by nearly 50%, which now hold the company record for net subscriber additions over six and 12 month periods (108,000 in H2 2019 and 151,000 in FY19).

Investors were likely also pleased by the company announcing its first positive free cash flow of $6.5 million, a stark difference to the negative free cash flow of ~$25 million last year. A positive free cash flow also puts the company one step closer to a net profit.

What’s next for Xero?

The company has done an impressive job of attracting and retaining customers, having a customer churn of only 1.1%. Xero says it will focus on its track record of growing its LTV, having grown its customer value of the past five years at a rate of 48%.

XRO also provided guidance for FY20, saying it expected free cash flow to be a similar proportion of operating revenue to that report in FY19.

Xero made a number of acquisitions during 2018 as part of its global expansion plans. As the company continues to focus on growing its global small business platform and reinvesting its cash, expect to see Xero aim for more international acquisitions, sustaining longer-term shareholder value.

Regards,

Ryan Clarkson-Ledward,
For Money Morning

PS: If you think Xero’s performance this year has been impressive, then you need to check out this free investor report that reveals the highest potential growth sectors for 2019 and beyond. Download now to find out more.


Ryan Clarkson-Ledward is one of Money Morning’s junior analysts. Ryan holds degrees in both communication and international business. He helps bring Money Morning readers the latest market updates, both locally and abroad. Ryan tackles all the issues investors need to know about that the mainstream media neglects. Ryan’s primary focus is assisting Sam Volkering with background research and insight for readers by dissecting the latest events affecting the world. Working closely with Sam, they explore the latest in small-cap and technology stocks as well as cryptocurrency opportunities. You can find Ryan’s contributing research, developments, and supporting information across several e-letters, including:


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