Profits Too Low for Xero in Nervy Market

Accounting platform Xero ended up riding out the pandemic in all its forms very nicely, judging by the increases in profit, revenue and subscribers  for the year to March.

Xero told the ASX on Thursday that it lifted revenue 18% from 2019-20 to a record $NZ848.8 million ($A785 million).

The company saw record subscriber numbers of 2.74 million, up 20% year on year and driven by its continuing international push which didn’t slacken during Covid.

And earnings for the year surged to $NZ19.8 million for the year, from $3.3 million the previous year.

But some analysts reckoned all that was a bit light on while the timing of the results release coincided with another big sell off in tech stocks on Wall Street.

So Xero shares were whacked early on with a fall of more than 13% to $117.39, after touching a day’s low of $115.25.

On another day without the doom and gloom from the Nasdaq slide, these figures would have passed muster.

Xero CEO Steve Vamos said Xero had responded to its customer needs during the pandemic while continuing to execute its strategy, completing a significant capital raise and acquiring Planday, Tickstar and Waddle.

“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.”

Directors said COVID-19 while slowed Xero’s top line progress in the first six months however in the second half Xero delivered its strongest ever half year subscriber numbers with 288,000 net additions.

There’s no dividend and in its outlook the company said it will “continue to focus on growing its global small business platform and maintain a preference for reinvesting cash generated, subject to investment criteria and market conditions, to drive long-term shareholder value.”

“Total operating expenses (excluding acquisition integration costs) as a percentage of operating revenue for FY22 are expected to be in a range of 80-85% which is consistent with levels seen in the second half of FY21 and the pre-pandemic period.

“Integration costs, relating to the three acquisitions announced during FY21, are expected to increase total operating expenses as a percentage of operating revenue by up to 2% for FY22.

“As previously stated, the acquisition of Planday is expected to contribute approximately three percentage points of additional operating revenue growth in FY22,“ Xero told the ASX.

The 2% rise forecast in integration costs also worried investors – who were looking for anything slightly negative to worry them.


About 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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