Is This ASX 100 Share Opening to a Multibillion Opportunity?

Team Veye | 23-Aug-2024

Xero Limited (ASX: XRO), an ASX 100 Stock, delivered an encouraging operating result in FY24 with a balance between strong revenue growth and significantly improved profitability. Xero’s results demonstrate the momentum and trust of customers in its platform with a significant opportunity to introduce the benefits of Cloud Technology to new customers while increasing the use of platform by existing customers.

In FY24, Xero Limited demonstrating notable improvements across key financial and operational metrics achieved a balanced growth in Annualized Monthly Recurring Revenue (AMRR), which increased by NZD 407.6 million or 26% year-over-year (22% in constant currency). reaching NZD 1,961.4 million .This growth was driven by both a notable 11% rise in subscriber numbers and a 14% expansion in average revenue per user (ARPU) to NZD 39.29.

Operating revenue surged by 22% to NZD 1,713.8 million, driven by an 11% increase in subscribers, reaching 4.16 million. Although net subscriber additions decreased by 11% to 419,000.

The company saw a dramatic rise in EBITDA to NZD 497.4 million, compared to NZD 158.4 million in the previous year, and adjusted EBITDA grew by 75% to NZD 526.5 million. Operating income improved substantially to NZD 255.7 million from NZD 57.3 million, while net profit turned positive at NZD 174.6 million, reversing the previous year's loss. Free cash flow also saw a significant increase to NZD 342.1 million from NZD 102.3 million. Additionally, the total lifetime value of subscribers rose by 16% to NZD 15.5 billion, and the gross margin improved to 88.2%, up from 87.3%.

Xero Limited's financial history from 2020 to 2024 reflects a trajectory of significant growth and evolving profitability. Over this period, the company's revenue surged from NZD 718.2 million to NZD 1,713.8 million, highlighting robust demand for its software solutions and successful market expansion. Cash flow from operating activities improved notably, reaching NZD 591.8 million by 2024, while free cash flow also saw a positive trend. The company's liquidity remained strong, with a high current ratio and stable working capital relative to total assets.

Xero is among Technology Stocks committed to enhancing its fundamental capabilities in the upcoming years, which is anticipated to lead to a modest increase in expenditures, particularly in the areas of product design and development. Total operating expenses are projected to account for 73% of total revenues in FY25. The company aims to achieve substantial advancements in its payment solutions, intending to streamline payment processing for clients by integrating various payment methods. Furthermore, Xero plans to improve its bulk tools to increase their utility for customers, while the launch of JAX Beta is progressing, with trials set to commence with select customers. Collectively, these initiatives are expected to significantly enhance the company's marketability and customer satisfaction, ultimately contributing to sustained sales growth in the long term.

Xero's operations are characterized by strong and continually enhancing core fundamentals, primarily including its subscriber base and ARPU, both of which consistently exhibit double-digit growth rates annually. Xero's balanced presence in both Australia and international markets further diversifies its growth opportunities and enhances the stability of its operations. The ongoing research and development, along with product innovation initiatives, are expected to foster sustainability and improve user retention and expansion moving forward. 

Source: Company’s Report

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