Xero posts small net profit as customers pass 2 million

Subscriber numbers rose 30 per cent, up from 1.579 million in September last year. Photo / Supplied

Xero shares jumped more than 6.6 per cent after it announced better-than-expected first-half results including a small net profit, positive cash flow and a 30 per cent jump in subscriber numbers to more than two million.

Xero shares, which trade only on the ASX, rose as high as a record A$71.98 ($77.81) from A$67.50 yesterday before easing to A$71.65. The shares are more than 70 per cent higher than a year ago.

The accounting software company reported a $1.3 million net profit for the six months ended September compared with a net loss of $28.6m in the same six months last year.

Operating profit before interest, tax, depreciation and amortisation nearly doubled to $65.9m, from $34.5m, while free cash inflow rose to $4.8m from a net outflow of $9.8m in the previous first half.

Subscriber numbers rose to 2.057 million from 1.579 million in September last year.

"While it took more than a decade to add Xero's first million subscribers, it took just two-and-a-half years to add the next million, demonstrating the pace of Xero's adoption across a number of markets," the company says.

Subscriber growth in Australasia rose 23 per cent to 1.2 million with British subscribers climbing 51 per cent to 536,000 and North American subscribers up 21 per cent to 215,000.

Arch-rival, US-based Intuit, told its investor day last month that its subscriber numbers in Britain reached 545,000 at July 31, although its average revenue per subscriber is a little more than half Xero's.

Intuit was the incumbent desktop provider of accounting software for small businesses in the US before Xero began disrupting that market with its online software-as-a-service product. it remains unquestionably the dominant player with 3.3 million US subscribers at July 31, up 25 per cent from a year earlier, and another 315,000 subscribers in Canada, up 48 per cent from a year earlier.

Xero says its annualised recurring revenue rose 30 per cent to $764.1m while actual revenue in the six months of $338.7m was up 32 per cent on the previous first half.

"We continued to perform well this half with strong topline results and improving financial performance," says chief executive Steve Vamos in a statement.

Xero will continue to focus on its global small business platform and will maintain a preference for reinvesting cash generated, subject to investment criteria and market conditions, to drive long-term shareholder value.

It says it expects free cash flow this financial year will be a similar proportion of total operating revenue to that reported for the year ended March – free cash flow that year was $6.5m and operating revenue was $552.8m.

Xero doesn't pay dividends.