The Xero Ltd (ASX: XRO) share price is in focus after reporting its FY25 result.
Xero is an accounting software provider with a major presence in countries like Australia, the UK and New Zealand.
Xero FY25 result
The software business reported that its total number of subscribers increased by 6% to 4.41 million. The total number of net subscriber additions was 254,000, or 414,000 excluding the removal of long-idle subscriptions.
Xero reported that its operating revenue grew by 23% to NZ$2.1 billion, boosted by an increase of the average revenue per user by 15% to NZ$45.08. This helped annualised monthly recurring revenue (AMRR) soar 22% to NZ$2.39 billion.
The gross profit margin rose by a further 0.8 percentage points to 89%, up from 88.2%.
The company reported a 28% rise of EBITDA to NZ$638.5 million and a 22% increase of adjusted EBITDA to NZ$640.6 million. Xero reported that its net profit after tax (NPAT) rose 30% to NZ$227.8 million and free cashflow rose 48% to NZ$506.7 million. These statistics are very important for the Xero share price.
Subscriptions
The long idle subscriptions were those that had been undeployed for more than 24 months and were not expected to be deployed in a reasonable timeframe. Xero said these subscriptions were low value and largely located in the international segment. These subscriptions were removed during the first half of FY25.
This will allow Xero’s sales teams to better focus on solving customer-related jobs and working with accountants and bookkeepers to acquire and deploy their Xero inventory through smaller and more frequent sales motions.
Excluding the long idle subscriptions, average monthly churn was 1.03%.
Australia and New Zealand subscribers increased to 2.6 million and international subscribers rose to 1.8 million.
During FY25, the business launched Xero Simple to support UK customers with making tax digital for income tax. It also launched tap to pay in the Xero accounting mobile app for Australia, UK and US small businesses to accept instant payments from their smartphone.
Xero also launched Just Ask Xero, a GenAI-powered smart business companion.
Final thoughts on the Xero share price
In FY26, the company is expecting its total operating expenses as a percentage of revenue to be around 71.5% in FY26. That compares to 71.8% in FY25. With profit growth seems likely.
The market seems to like it, with the Xero share price up more than 2% in response to the result.
I think Xero is a great business, though with a share price of $178 it certainly isn’t cheap. I don’t think this is the best time to invest, but it’s delivering impressive results. I’d be very happy as a shareholder.
