The Xero Limited (ASX: XRO) share price is under the spotlight after the ASX software share announced new initiatives at its investor day.
The company provides software to businesses around the world, with a particular focus on Australia, New Zealand and the UK.
FY25 to FY27 growth initiatives
The company believes it has the opportunity to double its revenue and deliver the ‘rule of 40’ (or greater) performance. In FY23 it made revenue of NZ$1.4 billion and had annualised revenue of NZ$1.6 billion.
For Xero, the rule of 40 means the annual growth rate percentage, plus the annual free cash flow percentage (of revenue), adds up to at least 40.
As the business grows, it will aim to be more balanced between subscriber growth and average revenue per user (ARPU) expansion.
Xero said its top three ‘super jobs’ – accounting, payments and payroll – represent around $100 billion across Australia, New Zealand, the US, the UK and Canada. It wants to win in these areas.
One of the things the company wants to do is “optimise pricing and packaging to drive customer value, usage and growth”.
It also wants to enhance the customer experience through AI and mobile, while realising the potential of Xero’s ecosystem and APIs, as well as growing in other markets efficiently.
BILL integration partnership
Xero is extending its bill payments in the US by working with BILL, which is a “leading financial operations platform” for small and mid-size businesses with more than 470,000 businesses using its financial automation solution.
The ASX software share said the partnership will strengthen its US payments offering and add more value for US customers. Subscribers will be able to manage, approve and pay bills through Xero without leaving the Xero platform – it will avoid the need for manual bank processes and makes it easier to reconcile transactions.
More growth in the US would be helpful for the Xero share price.
Just Ask Xero (JAX) generative AI
Xero introduced JAX, its new generative AI offering, to help customers complete tasks. Once available, JAX can help small businesses and their advisors automative accounting tasks and deliver personal insights.
Tasks it could help with include generating an invoice either in Xero or other apps, such as email or WhatsApp. JAX will be able to complete the task and then propose other tasks, such as following-up on overdue payments or creating emails.
Xero is “initially” focused on invoicing, quoting and contacts, due to the importance of those jobs for customers. It also intends to extend into bills, cash flow forecasting and reporting.
JAX will be available in beta later in 2024.
Outlook for the Xero share price
Xero is still aiming for an operating expense to operating revenue ratio in FY24 of around 75%, which will improve the operating profit compared to FY23.
I think Xero has a very exciting future, particularly if it can reach the rule of 40 numbers that it’s suggesting.
If its profit margins keep increasing, I think the Xero share price can keep rising as the market sees how much profit this business can make.
It’ll be interesting to see what other partnerships the business can find in the US to improve its offering.
