The Xero Ltd (ASX: XRO) share price is under the microscope after the company announced a mixed FY27 first-half result and large share buyback.
Xero is a major accounting software business with operations across a number of countries including New Zealand, Australia, the UK and the US.
FY27 first half result
Here are the highlights from the result for the six months to 30 September 2026 in New Zealand dollar terms:
- Customers grew 12% to 5.15 million
- Operating revenue grew by 46% to $1.75 billion
- Annualised monthly recurring revenue (AMRR) increased 41% to $3.84 billion
- Gross profit margin declined to 76% (down from 88.5%)
- EBITDA (EBITDA explained) declined 8% to $348 million
- Adjusted underlying net profit (NPATA) dropped 34% to $81.1 million
- Net profit after tax (NPAT) declined 86% to $18.5 million
- Free cashflow declined 26% to $238 million
What happened in the period?
The company reported strong performance in a number of revenue metrics.
While customers grew 12% to 5.15 million, its net customer additions increased 28% to 226,000. Average revenue per customer (ARPC) improved by 25% to $62.21. The total lifetime value (LTV) of customers increased 16% to $22.7 billion.
The profitability metrics were impacted by the acquired Melio business, which was bought in the second-half of FY26. Melio is currently a loss-making business, reflecting its “stage of maturity and journey to scale”. Melio is expected to reach adjusted EBITDA breakeven on a run-rate basis in the second half of FY28.
Xero reported some (‘pro forma’) numbers to show what would have happened if Melio’s numbers had been included in the FY26 first half result, to reflect the underlying year on year changes of the two businesses’ combined numbers.
Pro-forma operating revenue rose 27% to $1.75 billion, pro-forma adjusted EBITDA grew 23% to $361.5 million, pro-forma free cashflow grew 32% to $238.1 million and pro-forma adjusted underlying net profit (NPATA) rose 159% to $81 million.
Xero share buyback
The company said that its confidence in its financial strength and outlook has supported approving an on-market share buyback program of up to A$1 billion.
This will be completed over the next 12 months (this is in addition to the recently completed A$550 million program to offset dilution). It’s partly looking to offset dilution from expected FY28 share-based compensation.
It intends to maintain its balance sheet strength throughout the 12-month program and maintain a healthy net debt to adjusted EBITDA ratio.
Outlook for the Xero share price
Excitingly, Xero upgraded its guidance for FY27.
Operating revenue is now expected to be between $3.77 billion to $3.83 billion, up from previous guidance of $3.62 billion to $3.73 billion. On a constant currency basis, revenue growth is expected to be between 24% to 27%.
Adjusted EBITDA is expected to be between $880 million to $920 million (up from the previous guidance of $860 million to $920 million).
The FY27 second half adjusted EBITDA will reflect the benefit from announced price rises and payments growth momentum, disciplined headcount cost management, further operating efficiencies and an expected reduction in Melio’s adjusted EBITDA losses.
Xero also expects to deliver a rule of 40 (revenue growth plus profitability) outcome of around 40% for FY27 on a pro-forma basis. That’s an improvement on Xero’s previous expectations that prior to FY28 it expected to deliver below rule of 40 outcomes.
The company also sees the potential to reach FY28 revenue of more than $4.6 billion, excluding revenue synergies.
I think the Xero share price may still be undervalued, despite the jump. If it continues delivering revenue growth like that, I think its operating leverage will help drive earnings strongly.
