Xero Limited (ASX: XRO) has reported its annual result for the year to 31 March 2019.
Founded in New Zealand in 2006, Xero has become the dominating player in the business and accounting software market in Australia, New Zealand and the UK. Employing more than 2,300 people, Xero helps more than 1.8 million subscribers manage their accounting and tax obligations.
Here’s What Xero Reported
The accounting software business reported that operating revenue increased by 36% to NZ$552.8 million with 32% growth of annualised monthly recurring revenue (AMRR) to NZ$638.2 million. This means, if Xero keeps the same number of subscribers, it has banked another 15% of revenue growth over the next year.
Xero said that international net subscriber additions was greater than the Australia and New Zealand region. Xero added 432,000 net subscribers, with 151,000 added from the UK.
Xero’s gross profit margin improved to 83.6% from 81.5% in the previous year, showing increased profitability.
EBITDA excluding impairments grew by 84% to NZ$91.8 million (click here to learn what EBITDA means).
The net loss after tax worsened by 9% to NZ$27.1 million, however excluding impairments the net loss after tax improved by 63% to a loss of NZ$8.5 million.
Xero did say that it generated a positive net profit after tax (NPAT) of NZ$1.4 million in the second half of its FY19.
Perhaps the most positive thing of all was that Xero revealed it generated a free cash flow of NZ$6.45 million.
Xero Management Comments
Xero CEO Steve Vamos said: “As we head into FY20 and beyond, we’re making great progress towards our strategic priority of driving cloud accounting adoption globally.
“We have a genuine competitive edge by prioritising investment in growth, and partnering closely with accountants and bookkeepers to deliver a human-centered technology experience for small business communities across the globe.”
Is Xero A Buy?
Entering the stage of positive free cash flow and seemingly profitability is a large and important step for Xero. The company has managed its growth very well over the past decade.
It’s still growing subscriber numbers at an impressive rate, so it’s certainly one of the most exciting businesses on the ASX and is worth holding for the long term.
However, no business is a buy at any price. It would have been better to buy shares over the past few months when its share price was in the $40s or even in the high $30s at the end of last year.
With most share markets near their year-highs, I think we will be presented a better entry price for Xero than today over the next 12 months.
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Disclaimer: Any information contained in this article is limited to general financial/investment advice only. The information has not taken into account your specific needs, goals or objectives, so please consider consulting a licenced and trusted adviser before acting on the information. Please read The Rask Group’s Financial Services Guide (FSG) for more information. This article is authorised by Owen Raszkiewicz of The Rask Group, which is a corporate authorised representative No. 1264179 of Strawman Pty Ltd (ACN: 610 908 211) (AFSL: 501 223).
At the time of publishing, Jaz does not have a financial interest in any of the companies mentioned.