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FY22 result: Xero (ASX:XRO) share price on watch after more growth

The Xero Limited (ASX: XRO) share price is in focus after releasing its FY22 report for the year to March 2022.

Xero is a large cloud accounting business with subscribers all over the world.

Xero’s FY22 report

The ASX tech share reported several financial metrics that grew by double digits:

  • Operating revenue increased by 29% to NZ$1.1 billion
  • Total subscribers rose by 19% to 3.3 million
  • Annualised monthly recurring revenue (AMRR) rose by 28% to NZ$1.2 billion
  • Total subscriber lifetime value (LTV) rose 43% to NZ$10.9 billion
  • The gross profit margin increased by 1.3 percentage points to 87.3%
  • EBITDA rose by 11% to $212.7 million
  • Free cash flow of $2.1 million

Xero’s preference is to re-invest money generated back into the business for more growth, which is why its free cash flow was so low this year.

The company saw growth across the various countries and regions that it operates. Growth is usually useful for the Xero share price.

Australian revenue increased by 26% to NZ$483.3 million, with 229,000 net subscriber additions to reach 1.34 million subscribers.

New Zealand revenue rose by 15% to $149.4 million, with 66,000 net subscriber additions to reach a total of 512,000 subscribers.

UK revenue increased by 30% to NZ$291.5 million, with 130,000 net subscriber additions, taking total subscribers to 850,000. Growth was subdued in the third quarter but improved in the fourth quarter. Xero has launched an end-to-end personal tax solution for UK accountants and bookkeepers. This should open more growth avenues for Xero in the country.

North American revenue rose by 28% to NZ$72.6 million, with 54,000 net subscriber additions to reach a total of 339,000.

The ‘rest of the world’ revenue increased by 85% to NZ$100 million, and subscribers rose with 51,000 net subscriber additions to 226,000.

Acquisition progress

Xero noted that its acquisitions of Planday, Tickstar, TaxCycle and LOCATE Inventory, completed in FY22, made “good progress”. These businesses made $41.7 million of operating revenue. These acquisitions added “significant technology, product and talent capabilities to Xero, as well as seeding new revenue streams and enabling category expansion. Xero will continue to invest in these businesses to support their growth.”

Outlook for Xero and the share price

Xero is going to keep investing for growth to drive long-term shareholder value. Total operating expenses as a percentage of operating revenue for FY23 is expected to be towards the lower end of a range of 80% to 85%.

However, the company noted that its long-term aspiration is to see a significant improvement in its operating expense ratio as Xero and the global cloud accounting industry. During COVID-19, I think we saw a glimpse of how profitable Xero could be if it chose to be.

I think Xero is one of the best ASX growth shares and best blue chips. I’d be very happy to buy some shares during these market declines. The high underlying profit margins, the global growth and strong retention rate are very attractive features.

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At the time of publishing, Jaz does not have a financial or commercial interest in any of the companies mentioned.