The ASX blue chip stock has emerged as one of the top growth stocks after the announcement of its strong half year results.
Xero Limited (ASX: XRO)
Xero Limited (ASX: XRO) has delivered impressive half-year results for H1 FY25, underlining its capability to achieve robust financial outcomes while creating substantial customer value and executing a targeted growth strategy. Xero reported a 25% increase in operating revenue (23% in constant currency) to reach $995.9 million, driven by a combination of ARPU expansion and subscriber growth. Xero’s H1 FY25 EBITDA rose significantly by 51% year-on-year, totaling $311.7 million, with an improved free cash flow of $208.7 million, yielding a free cash flow margin of 21%, compared to 13.3% in the prior period. This contributes to a Rule of 40 result of 43.9%, reinforcing management’s disciplined approach to balancing growth and profitability.
Subscriber growth remained resilient, even after Xero executed a previously announced initiative to clean up its subscriber base by removing 160,000 long-idle subscriptions. Excluding these removals, net new subscriber additions stood at 186,000 for H1 FY25. Total LTV expanded by 15% to $17.0 billion (14% in CC), reflecting the ongoing value provided to its customer base and underscoring Xero’s strong market positioning. The company is executing on its "Win the 3x3" strategic priority, focusing on delivering winning solutions for the top three small business needs in its largest markets, through disciplined investments in key product developments. This includes the launch of Tap to Pay within the Xero Accounting mobile app, which allows small businesses in Australia and the UK to accept payments via smartphone, as well as an expanded direct bank feed offering in the US and Canada, now totaling more than 700 connections. Other significant product advancements included the introduction of GenAI-powered JAX, Xero’s smart business companion, as well as enhancements in payroll management and a new embedded bill payment system for US customers.
Xero is among the best growing companies to invest in as it also announced its planned acquisition of Syft Analytics to enhance reporting and analytics capabilities. This acquisition demonstrates Xero’s targeted M&A strategy aimed at advancing the Win the 3x3 objective and its disciplined approach to capital allocation. The company further strengthened its payroll capabilities in the US by extending its partnership with Gusto, aligning with its strategic focus on delivering seamless, embedded payroll solutions in its key markets. Operating expenses as a percentage of revenue for FY25 are projected around 73%, with product design and development costs expected to remain consistent with FY24 levels. Management's guidance reflects a continued focus on cost discipline, product velocity, and strategic investment, laying a strong foundation for sustainable growth and shareholder value creation.
Source: Company’s Report
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