Xero shares walloped on result

Xero chief executive Steve Vamos with founder and director Rod Dury. Photo / File

Xero shares initially tumbled 12.97 per cent to A$117.49 as the ASX opened on news that full-year profit fell short of analysts' expectations and of slowing growth in new subscribers in several markets. [UPDATE: Xero fell a further 5.4 per cent, to A$111.98, in early Friday trading.]

The broader market fell 0.9 per cent. The ASX's All Technology index fell 3.66 per cent.

The Wellington-based, Australian-listed cloud accounting software company's ebitda jumped 39 per cent to $191.2 million - but still fell some 20 per cent shy of the consensus analyst expectation.

And while Xero added a record 280,000 subscribers in the second half, to finish the year on 2.74m, in one its key markets, the UK, Xero's rate of growth for new subscribers fell 29 per cent and in North America its rate of growth cooled by 4 per cent.

Net profit was $19.8m from the year-ago $3.4m.

And revenue was up 17 per cent to $963.6m.

But average revenue per user per month slipped 2 per cent to $29.30.

Xero's pullback today also has to been seen in the context of its recent bull run. The stock rose from A$65.75 in March to crack the A$100 mark for the first time in October before peaking at A$150.59 in December before giving up some of its gains in the New Year.

Free cashflow increased by $29.8m to $56.9m and Xero finished the financial year with a net cash position that had more than doubled to $256.6m, supplemented by an undrawn credit facility of $150m and a US$700m convertible note issued in November.

Early in the Covid outbreak, Fisher Funds senior portfolio manager Sam Dickie said Xero's strong liquidity positioned it well for the surviving or even expanding during the pandemic. Xero duly went on an acquisition roll, buying invoice-lending startup Waddle for A$80m $85m), Swedish e-invoicing outfit Tickstar in a deal worth up to SEK 150 million ($23.4m) and workforce management maker Planday for €155.7m ($259m) in its largest-ever deal.

As per last year, when it cited Covid uncertainty, Xero provided only very limited guidance for FY2022, with no earnings or revenue forecast.

In an investor presentation, it did offer that operating expenses would be 80 to 95 per cent of revenue, "consistent with the second half of FY2021 pre-pandemic levels".

That guidance excluded the cost of integrating three recent acquisitions, which was expected to increase op-ex as a percentage of revenue by 2 per cent.