The Xero Limited (ASX: XRO) share price has jumped 5% after reporting its FY23 result for the year to 31 March 2023.
Xero is one of the world’s largest internet-powered accounting software providers.
FY23 result
Here are some of the highlights from the result, with all numbers being in New Zealand dollars:
- Operating revenue grew by 28% to $1.4 billion
- Subscribers increased by 14% to 3.74 million
- Average revenue per user (ARPU) rose 10% to $34.61
- Gross profit margin flat at 87.3%
- Adjusted EBITDA (EBITDA explained) went up by 45% to $302 million
- Operating profit grew 61% to $57.3 million
- Net loss after tax worsened to $113.5 million from a $9 million loss
- Free cash flow soared to $102 million, up from $2 million
The company’s statutory profit was hurt by impairments to Planday and Waddle, two acquisitions from recent years. The result was also hurt by restructuring costs and “other non-cash items”.
Xero said that the Planday impairment was $77.9 million, mainly reflecting a “reduction in market valuation multiples along with an element of operational performance.”
Subscriber statistics
There were a number of positives, which is good news for the Xero share price.
As mentioned, the average revenue per user increased 10% to $34.61, helping the total lifetime value of subscribers grow by 23% to $13.4 billion.
Subscriber loyalty remains consistently high. FY23 only saw subscriber loss of 0.9%. In other words, it kept just over 99% of subscribers. That’s really good when we consider how quickly subscriber numbers are growing.
Australia and New Zealand subscribers grew to 2.13 million, with 220,000 net subscriber additions in Australia (ending with 1.57 million subscribers). New Zealand added 55,000 net subscribers.
Internationally, the UK added 120,000 net subscribers to reach 970,000 subscribers. North America added 45,000 net subscribers in FY23 to reach 384,000. The rest of the world subscribers grew by 28,000 to 254,000.
Outlook for the Xero share price
The business already has a bit of growth baked in for next year.
It finished the year with annualised monthly recurring revenue (AMRR) of $1.55 billion, which is 11% higher than FY23’s total operating revenue.
The business is targeting an operating expense to operating revenue ratio in FY24 of around 75%, which would be an improvement compared to FY23.
Xero said its long-term aspiration is to continue to improve its operating expense ratio and its operating income margin, although a specific timeline hasn’t been set. It may identify areas for disciplined customer-focused growth.
The business has done very well over the last six months, rising by 45%. I’m not sure how much further it can rise in the short-term, but the future looks very promising in my opinion. If its profit margins keep rising, I think it’ll do very well for shareholders.
