Strong growth and profitability for Xero in FY24

Company News

by Glenn Dyer

Accounting software multinational Xero (ASX:XRO) has reaped the benefits of the restructuring and management change a year or so ago and the new direction she brought to the group.

CEO Sukhinder Singh Cassidy was named CEO in late 2022 and started in early 2023 with a dramatic set of changes for the company, which was finding it hard to keep costs under control while growing subscriber numbers.

There were signs at the September 30 half-year of some improvement, and Thursday saw the company improve with a 22% jump in revenue, costs under control, and a 75% surge in underlying earnings.

CEO Sukhinder Singh Cassidy said in Thursday’s announcement, "This result shows we're doing what we said we’d do. We’ve delivered a strong and profitable FY24 result, demonstrating our commitment to balancing growth and profitability. We have a clear and focused strategy to win on purpose, and Xero is positioned well as we move into FY25.”

Revenue jumped to $NZ1.7 billion for the year to March, driven by more subscribers, higher revenue per subscribers (ARPU), and an operating expense to revenue ratio of 73.3%, which was in line with the forecast from Xero.

Adjusted (or underlying) EBITDA was up 75% to $NZ526.5 million, with normal EBITDA of $NZ497.4 million after the write-down of $NZ28.9 million in the company’s Xero Go product.

The good news saw the shares leap more than 6% in the first quarter-hour of trading. Xero said that average monthly churn (at 0.99%) "remained below pre-pandemic levels, and ARPU improved a further 14% (10% in constant currency), underscoring Xero’s macro resilience and the value customers place in Xero to help them manage changing environments."

Australia and New Zealand "continued to deliver strong results in higher cloud-penetrated markets with continued double-digit revenue growth, up 22% (22% in CC) to $NZ969.9 million. ARPU increased 11% to $NZ37.97, and total subscribers grew to 2.4 million."

"In Australia, Xero delivered 205,000 net subscriber additions to reach 1.8 million subscribers. In New Zealand, 38,000 net subscribers were added to reach 605,000 subscribers.

The company said growth momentum continued in its international markets, with revenue increasing 24% (20% in CC) to $NZ743.9 million, ARPU rising 17% (11% CC) to $NZ41.05, and subscribers growing to 1.8 million.

In the UK, Xero delivered pleasing growth, adding 107,000 net subscribers, taking total subscribers to 1.1 million. Xero added 38,000 net subscribers in North America to reach 422,000 subscribers. Rest of World subscribers increased to 285,000 with 31,000 net subscriber additions.

For the next financial year, Xero saw expenses around the 73% level of 2024 but forecast higher spending on product design and development, with their costs as a percentage of revenue "expected to be higher.”

Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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