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Xero share price: what’s the outlook as FY20 revenues climb 30%?

As Xero delivers a good set of full-year results, next year’s outlook remains uncertain for the tech-forward company amid the coronavirus pandemic.

Xero share price dips following full-year release

Cloud-focused accounting software company Xero (XRO) delivered a solid set of FY20 results to the market on Thursday, revealing robust top-line growth, impressive subscriber growth and a maiden net profit!

Specifically, for the full-year ending 31 March and on a year-over-year basis, Xero recorded:

  • Operating revenues of NZD$718.2 million, up 30% or 29% on a constant currency basis
  • Earnings (EBITDA) of NZD$137.7 million, up 88%
  • Total subscribers of 2.285 million, up 26%
  • A net profit of NZD$3.3 million, up from a NZD$27.1 million net loss
  • Free cash flow (FCF) of NZD$27.1 million

Reflecting on these results, Xero's CEO, Steve Vamos noted that 'While COVID-19 brings uncertainty, our long-term strategic ambitions are unchanged.’

Xero indeed has continued to push forward with a global growth agenda, reporting full-year subscriber growth in all of its key markets.

In its more mature markets, the company saw its Australian subscribers hit 914,000 (+26%), while New Zealand subscribers came in at 392,000, up a more modest 12%.

By comparison, in regions such as the United Kingdom and North America, where cloud adoption remains less prolific, Xero notched up strong growth statistics. For example, United Kingdom subscribers came in at 613,000 (+32%), while North American subscribers rose 24% to 241,000. Xero subscribers from the rest of the world hit 125,000 in FY20 – implying an impressive growth rate of 51%.

In response to today’s release, the Xero (XRO) share price traded up and down sharply in the first few hours of trade. By 1:10 PM AEST, Xero was down $3.08, or 3.68% to $80.70 per share.

The outlook

Centrally, because the company’s full-year results end 31 March, investors will have to wait until the first-wave of FY21 results are released before better visibility can be gained on the coronavirus’s impact on the company’s performance.

Even so, in the small time-frame where the coronavirus’s impact could be quantified, Xero's management said that during the March month there was 'some reduction in annualised recurring revenue (AMRR) progress in that month.’

Even so, it was stressed that 'Xero does not anticipate significant changes to its long-term strategy, and it believes strongly in the value Xero can bring to small businesses and their advisors.'

Overall, the firm’s FY20 annualised recurring revenue stood at NZD$820.6 million, up 29% on a year-over-year basis.

Speaking more specifically to the outlook, management warned that 'trading in the early stages of FY21 has been impacted by the COVID-19 environment. The continued uncertainty surrounding COVID-19 means it would be speculative for us to say anything more at this time on its potential impact on our expected performance for FY21.'

How to trade Xero

Are you bullish or bearish on Xero? Trade accordingly. You can use CFDs to trade Xero and other growth stocks – LONG or SHORT through IG’s world-class trading platform now.

For example, to buy (long) or sell (short) Xero, follow these easy steps:

  1. Create an IG Trading Account or log in to your existing account
  2. Enter 'Xero' or 'XRO' in the search bar and select it
  3. Choose your position size
  4. Click on ‘buy’ or ‘sell’ in the deal ticket
  5. Confirm the trade

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.

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