Xero has enough cash to reach breakeven, posts 67pc jump in revenue

By Jonathan Underhill

Xero achieved the fastest per centage growth in the key North American market, where operating revenue jumped 116 per cent to $16.9 million. Photo / Grant Bradley
Xero achieved the fastest per centage growth in the key North American market, where operating revenue jumped 116 per cent to $16.9 million. Photo / Grant Bradley

Xero, the cloud-based accounting software firm, said it has sufficient cash reserves to reach breakeven without having to raise more capital, after posting a 67 per cent jump in full-year operating revenue and a wider net loss.

The Wellington-based company said its net loss was $82.5 million in the 12 months ended March 31, from a loss of $69.5 million a year earlier. Operating revenue rose to $207 million from $121 million, but was swallowed up by a 53 per cent increase in operating expenses to $249 million as the company focusses on building its subscriber base.

Xero used up $86 million on operations and investments in the latest year, down from $88 million a year earlier. It had cash and equivalents of $184 million at year-end, down from about $203 million at Dec. 31, suggesting it burned through about $19 million in the final quarter and has at least two more years to reach breakeven before needing more funds. Paid subscribers jumped to 717,000 in 2016, from 475,000 in the 2015 March year.

"We have extended our position globally, and lead the small business cloud accounting software market in Australia, New Zealand and the United Kingdom by subscriber numbers," chief executive Rod Drury said in a statement.

Annualised committed monthly revenue, a favoured metric for tech companies, rose 62 per cent to $257.9 million and its ebitda margin improved to -29 per cent from -49 per cent.

Xero achieved the fastest per centage growth in the key North American market, where operating revenue jumped 116 per cent to $16.9 million. That's still just 8 per cent of total operating revenue. In its biggest market of Australia, revenue climbed 65 per cent to $96.7 million and in New Zealand it climbed 42 per cent to $46.7 million. Operating revenue in the UK surged 88 per cent to $37.4 million.

The company gets more than 77 per cent of sales in foreign currencies and said its offshore revenue was affected by a weaker kiwi dollar. In constant currency terms, operating revenue rose 60 per cent to $198 million. Sales and marketing costs in the latest year rose 60 per cent to $148 million, or 72 per cent of operating revenue. In the 2015 year, those costs amounted to 75 per cent of operating revenue.

Product design and development expenses rose 53 per cent to $69.7 million. Xero's total headcount increased 25 per cent to 1,454 in the year ended March 31.

Xero's shares fell 0.5 per cent to $15.60 on the NZX and have dropped 20 per cent in the past 12 months. The stock is rated a 'buy' based on the consensus of seven analysts surveyed by Reuters. Shareholders have been taken on a wild ride by the shares in the past five years, with a peak of $45.99 in March 2014 after a steep ascent, followed by an equally steep decline to reach $15 in October of that year.

- BusinessDesk

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