Xero blows analsyt expectations out fo the water

Xero continued to increase profit and revenue during a pandemic-hit first-half, breezing past analyst expectations – but subscriber growth slowed.

The ASX-listed cloud-accounting software company reported a net profit of $34.5m for the six months to September, against its breakeven ($1.2m profit) result for the first half of FY2020.

That was twice the analyst consensus, Fisher Funds senior portfolio manager Sam Dickie says.

Ebitda increased to $120.8m from the year-ago $55.9m, or a third higher than analysts’ consensus forecast.

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Fisher credited a marked slow-down in costs for the profit jump, noting that operating expenditure grew by just 5 per cent in the first half, vs the prior period’s 28 per cent.

Operating revenue increased 21 per cent to $409m as Xero added 396,000 customers against its year-go number (and 164,000 against its full-year FY2020 number) for a total of 2.45m subscribers.

Xero said its monthly revenue run-rate was 15 per cent ahead of last year and equated to FY2021 revenue of $877.6m.

Free cashflow improved from $9.8m in the red in the first-half of FY2020 to $54.3m.

No guidance was given for the second half. Chief executive Steve Vamos said any attempt at a forecast would be speculative, given “the continued uncertainty created by Covid-19”.

Shares at all-time high ahead of report

Xero shares closed at an all-time high of $A$122.71 yesterday, for a market cap of A$17.2 billion ($17.35b).

It’s stock has been on a bull-run since mid-August update that revealed it was still adding subscribers, in all is major territories, despite pandemic lockdowns – if at a slower rate than 2019.

If the company had maintained its local listing, it would now be the second most valuable company on the NZX behind Fisher & Paykel Healthcare ($19.1b).

The company put off price increases as Covid hit.

There was also a fintech deal that could see Xero lending money to its customers as a helping hand.

In August, Xero bought Australian invoice-financing Waddle in a deal worth up to A$80m.

Waddle lets a small business take a quick secured loan against its accounts receivables – helping to tide it over until an invoice is paid.

In a market filing, Xero indicated the move could be part of a broader push into financing.

“Post the acquisition of Waddle, Xero will continue to explore how to facilitate small business access to capital beyond invoice financing,” it said.

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