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Xero share price: What’s the outlook following the Interim Report?

'This result demonstrates the value our customers attribute to their Xero subscription and the underlying strength of Xero's business model,’ said the company’s CEO, Steve Vamos.

Xero share price continues to outperform

Accounting software company Xero (XRO) posted another set of solid results for the half ending September 30, revealing robust revenue growth, improved free cash flow and a solid bump in total subscribers.

Investor enthusiasm around Xero has ramped up over the last year, with the stock up 54% since January, closing out Thursday's session at $123.50 per share. The ASX 200 benchmark, by comparison, in that same period, has fallen around 4%.

The Xero share price did however fall on Friday.

The Interim Report unpacked

On the top-line, Xero delivered another half of solid revenue growth, with operating revenue up 21% to NZD$409.8 million (+19%) against annualised monthly recurring revenues of NZD$877.6 million (+15%).

These top-line figures were underpinned by solid subscriber numbers, with Xero seeing total subscribers increase 19% to 2.45 million during the half. At present, the total lifetime value of these subscribers stands at 6.2 billion, up 15% year-over-year.

In terms of subscriber growth by location, Australia was the best performing region during the half, reporting subscriber growth of 21%. The UK and New Zealand saw subscriber growth of 19% and 13%, respectively. Subscriber growth, in the rest of the world, surged a highly impressive 37%.

'Subscriber growth was positive in all geographies, with stronger net subscriber additions in Australia and New Zealand with relatively less disruption in those markets from COVID-19. During a difficult period its pleasing to report we grew to exceed one million subscribers in both Australia and in our international segment,’ Mr Vamos said.

On the bottom-line, Xero notched up even more impressive figures, reporting net earnings (EBITDA) of NZD$120.8 million, representing an 86% increase year-over-year, while net profits after tax came in lower than the year prior.

These impressive earnings results were attributed to the company’s disciplined financial management during the period, with it being noted that sales and marketing costs declined by around 10% on a year-over-year basis.

Elsewhere the company notched up NZD$54.3 million in free cash flow, significantly up from the NZD$4.8 million from the half prior.

Commenting on the Interim Report, the Xero CEO, Steve Vamos said:

'This result demonstrates the value our customers attribute to their Xero subscription and the underlying strength of Xero's business model. We continue to prioritise investment in customer growth and product development in line with the long term opportunity we see.'

The outlook remains uncertain

Looking forward, Xero’s management reiterated that the company is a 'long-term oriented business with ambitions for high-growth.' However, given the uncertain operating environment, the company noted that it would not be providing FY21 performance commentary, including earnings guidance, at this time.

Ord Minnet restated their Lighten rating and $60 price target on Xero following the H1, though noted that both the recommendation and price target were currently under review.

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