Accounting and business software company Myob Group Ltd (ASX: MYO) has rocketed back into profitability for the first half of the 2016 financial year, compared to a loss in the first half of 2015 (1H15).

The company’s share price was down 6% at the time of writing, but investors clearly had high expectations given the solid result. Here is what you need to know:

  • Revenue for the first half jumped 11% to $178 million
  • Net Profit was $26 million, up from a loss of $65 million in the previous corresponding period.
  • The company has $58 million in cash, up from $36 million
  • An unfranked dividend of 5.5cps was declared, compared to none for the previous year. This takes the 12 month dividend to 10.5cps, a yield of 2.6%
  • Paying ‘SME Solutions‘ users rose 8% to 570,000

So what?

The real engine driving MYOB is the ‘SME Solutions‘ business which generates 63% of revenues and competes alongside XERO FPO NZX (ASX: XRO) and Reckon Limited (ASX: RKN).

Investors may be disappointed that MYOB’s paying users increased only 8% to 570,000 over the corresponding period. By comparison, XERO reported 717,000 paying users at 31 March this year, up 51%, and Reckon reported “over 36k online users“, up 20%.

Xero’s subscriber growth in Australia and New Zealand alone (regions more comparable to MYOB’s footprint) was up 61%.

However, I was impressed that MYOB continues to be incredibly successful in pushing up the average revenue per paying user, while retaining average user retention rates at 80%.

For the half year MYOB reported Average Revenue Per User (ARPU) of $396, a number that was $379 at 31 Dec 2015, and $371 in 1H15. By comparison, XERO FPO NZX (ASX: XRO) reported ARPU of $345 (NZ$360) at March 2016.

Full year outlook

For the full year MYOB says it expects revenue growth to be “in line with historical trends”. Analysts’ estimates by Reuters suggest this will be about 8%.

The company’s businesses are in good shape and look set to start generating  a lot of cash for investors going forward thanks to strong earnings margins. However, given the choice between Xero and MYOB, I prefer the global, long-tem growth potential of Xero at its current share price.

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Motley Fool contributor Regan Pearson owns shares of Xero. The Motley Fool Australia owns shares of Xero. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.