The Xero Limited (ASX: XRO) share price continued its positive run with another stellar gain in 2019.
Over the 12 months the business and accounting software platform provider's shares rose a staggering 90%.
This means it was the second-best performer in the WAAAX group of shares, behind only Afterpay Ltd (ASX: APT).
Why did the Xero share price rocket 90% higher last year?
Investors were buying Xero's shares following the release of a strong FY 2019 result and an equally impressive half year result for FY 2020.
In respect to the latter, in November Xero delivered a 32% increase in operating revenue to NZ$338.7 million for the six months ending September 30.
The company's annualised monthly recurring revenue (AMRR) grew at a similarly strong rate. At the end of the half, its AMRR had increased 30% on the prior corresponding period to NZ$764.1 million.
This strong growth was driven by yet another increase in subscriber numbers. Total subscribers grew 30% over the prior corresponding period to 2.057 million.
Impressively, after taking over a decade to reach one million subscribers, Xero achieved its second million in just two and a half years. This demonstrates just how rapidly its software is being adopted across a number of markets.
Another key metric which appears to have impressed the market was its total subscriber lifetime value (LTV). This metric is a key measure of the value a subscriber represents to a SaaS company over the subscriber's lifetime.
It is calculated by dividing ARPU over the monthly churn rate to get the total revenue expected from an average subscriber. After which, it is multiplied by the gross margin percentage to get total gross margin expected per subscriber.
LTV grew 37% to NZ$5.4 billion during the first half, with more than NZ$1 billion of value added during the period.
The future.
Whilst Xero didn't provide any guidance for the full year, it noted that current industry trends are favourable.
Xero's CEO, Steve Vamos, said: "There are a number of significant global trends contributing to Xero's growth including industry, regulatory and technology shifts. These include the increased use of cloud technology by small businesses, the digitisation of tax and compliance systems, and innovation reshaping the financial services sector."
In light of this and the quality and stickiness of its product, I think Xero's shares could be market beaters again in 2020. As a result, I would be a buyer of its shares even after 2019's strong gains.
