The market may be pushing higher today but the Xero Limited (ASX: XRO) share price hasn't been able to follow its lead.
In afternoon trade, the cloud accounting and business platform provider's shares are down 1.5% to $141.65.
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Why is the Xero share price under pressure today?
The Xero share price has come under a spot of pressure today following the release of a broker note out of Macquarie Group Ltd (ASX: MQG).
According to the note, the broker has downgraded the company's shares to an underperform rating and held firm with its $130.00 price target.
Based on the current Xero share price, this implies potential downside of 8% over the next 12 months.
What did the broker say?
The note reveals that Macquarie made the move largely on valuation grounds. The broker doesn't believe that its growth outlook warrants its shares trading on such lofty multiples. It would prefer to see them trading on fairer multiples before becoming more positive.
The reason Macquarie isn't as bullish on Xero's growth outlook as some analysts is due to its belief that the company is running out of room to grow in the ANZ market.
Macquarie notes that Xero now has a 53% share of the small to medium sized business market in the region. In light of this, it feels that its organic subscriber growth in the market will slow to the low single digits in the coming years.
This is disappointing because the lifetime value of its ANZ subscribers is more than double that of its international subscribers.
What do others think?
One broker that doesn't appear to agree with Macquarie is Goldman Sachs. It recently retained its buy rating and lifted its price target to $165.00.
Based on the latest Xero share price, this implies potential upside of 27% over the next 12 months.
Goldman doesn't appear concerned that its ANZ growth will slow. In fact, it is expecting its ANZ EBITDA to increase 142% between FY 2022 and FY 2030 from NZ$512 million to NZ$1,225 million.
Time will tell which broker has made the right call.
