Source: Sydney Morning Herald | Title: Xero shares hit on slowing revenue growth
Accounting platform Xero has reported slowing revenue growth in its half-year results, sending the platform’s share price 10 per cent lower on Thursday.
Xero took a hit from Covid-19 in the first half of the year and although it booked a 39 per cent jump in its earnings before interest, tax, depreciation and amortisation to $NZ191.2 million ($177.3 million), it missed analyst consensus estimates by 20 per cent.
Amidst a broader tech sell-off across the Australian market Xero shares fell 10 per cent to as low as $119.16 just after opening. Xero is 7.5 per cent lower in early afternoon trade.
Xero chief executive Steve Vamos said he believes small businesses will be a driver of economic growth post pandemic. Credit:AFR.
The platform reported revenue increased over the last year by 18 per cent to $NZ848.8 million.
Xero made a profit of $NZ19.8 million for the year, up from $NZ3.3 million the previous year.
While Xero reported record subscriber numbers of 2.74 million its closely watched growth rate for new subscribers globally slowed.
The rate for new subscribers in the United Kingdom declined by 29 per cent over the year and in the United States it dropped 4 per cent.
However in Xero’s more established home markets of Australia and New Zealand growth was up 7 per cent and 32 per cent.
Chief executive Steve Vamos told an analysts call a more challenging operating environment in the first half of the year had been followed by a stronger second half.
“It was pleasing to see growing momentum as the year progressed after the initial disruption of Covid-19,” he said.
Mr Vamos said Xero had completed a significant capital raise and acquired workforce management platform Planday, e-invoicing company Tickstar and invoice finance startup Waddle in “by far the most productive period of mergers and acquisitions we have had to date.”
Despite Xero’s slowing revenue growth Mr Vamos was upbeat about Xero’s prospects.
“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,” he said. “Looking ahead we believe small business will be a major driver of economic recovery in a post pandemic world.”
Garry Sherriff, analyst at the Royal Bank of Canada, said Xero’s subscriber growth was “solid” as the platform chose to spend to continue to grow its customer base.
“[The] market however may not welcome large cuts to EBITDA and free cash flow which are large this year and looking larger next year.”
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Cara is the small business editor for The Age and The Sydney Morning Herald based in Melbourne