Could the Xero Limited (ASX: XRO) share price be good value as it's currently at around $150?
The last couple of weeks has seen a fair bit of volatility for Xero shares, but that may just be normal for the share market. Looking at the price a month ago, it hasn't changed much. But over the last six months the Xero share price has risen around 18%.
What brokers think of the Xero share price
Different brokers have different ratings on the cloud accounting software business.
For example, Credit Suisse rates Xero as a buy with a price target of $160. The broker reckons that Xero's average revenue per user (ARPU) can increase in FY22 after the ASX tech share recently increased the subscription fee for subscribers. It also thinks that Xero can continue to grow its subscriber numbers at a good rate.
However, there are also brokers that think the opposite about the Xero share price. Analysts at Macquarie Group Ltd (ASX: MQG) rate Xero as a sell with a price target of $130. That suggests Macquarie believes that Xero shares could fell by more than 10% over the next 12 months, if the broker is right.
One of the most recent thoughts about that price target is that Xero's global accounting software rival, Intuit, recently revealed it was buying Mailchimp for US$12 billion. Intuit said that the two businesses will "work to deliver on the vision of an innovative, end-to-end customer growth platform for small and mid-market businesses, allowing them to get their business online, market their business, manage customer relationships, benefit from insights and analytics, get paid, access capital, pay employees, optimize cash flow, be organized and stay compliant, with experts at their fingertips."
Macquarie fears that Mailchimp may decide to cut ties with Xero, which would make Xero less useful to subscribers and therefore some may leave. Intuit could be more successful globally, weakening the ASX tech share's prospects.
How much growth has the ASX tech share been reporting recently?
The Xero share price may be partly being driven by the recent results and acquisitions.
In FY21 it grew operating revenue by 18% to $848.8 million and grew subscribers by 20% to 2.74 million. Annualised monthly recurring revenue increased by 17% to $963.6 million. The gross profit margin increased from 85.2% to 86%. Free cashflow surged 110% to $57 million.
The business decided to acquire a few different businesses in recent times, including Planday, which is expected to contribute approximately three percentage points to operating revenue growth in FY22.
Planday is a workforce management platform, which, at the time of the acquisition, had more than 350,000 employee users across Europe and the UK. The software aims to simplify employee scheduling, allowing businesses to forecast and manage their labour costs.
Xero said that the acquisition would help grow its small business platform, helping subscribers deal with increasing compliance requirements, support more flexible forms of work and look after their people. When combined with Xero, it is able to provide insights to a business or advisor that help to adjust staffing levels to match trading conditions and control labour costs, which are often an employer's largest expense.
The upfront payment for Planday was €155.7 million, whilst the total potential consideration (based on achievements) is €183.5 million.
