The Xero Limited (ASX: XRO) share price was out of form on Thursday.
The cloud accounting platform provider's shares dropped 6% to $138.12.
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Why did the Xero share price tumble lower?
Investors were selling down the Xero share price after its half year results fell short of expectations.
In case you missed it, for the six months ended 30 September, Xero reported a 23% increase in operating revenue to NZ$505.7 million but a 19% decline in EBITDA to NZ$98.1 million.
Xero's top line growth was driven by double-digit revenue growth across all segments other than its North American segment, which reported a 5% increase in revenue and just 23,000 net subscriber additions.
Is this a buying opportunity?
Goldman Sachs' analysts remain very positive on the Xero share price.
According to a note out of investment bank this morning, the broker has reiterated its buy rating but trimmed its price target by 4% to $158.00.
Based on the current Xero share price, this implies potential upside of 14.4% for investors over the next 12 months.
What did the broker say?
Goldman appeared to be a little disappointed with Xero's half year results, noting that its revenue was softer than expected due to its international operations.
Goldman commented: "In our view, Xero delivered a 1H22 result marginally below expectations, with weaker International net adds (following a strong 2H21) and ARPU growth (following Hubdoc/Sep-21 price rises), offset by continued improvement in unit economics (decreasing churn, improving LTV), announced plans to introduced similar price rises in US/RoW and upside risk in the terminal penetration assumptions given continued subscriber strength in ANZ.
In light of this soft half, the broker has revised its estimates lower.
It explained: "We revise our ANZ revenues lower in FY22 driven by a smaller than expected ARPU growth following Hubdoc/Sep-21 price rises (+5% vs. prev. GSe +8%), while higher in FY23+ driven by higher terminal subs, noting that Xero continues to exceed expectations for terminal SME penetration rates (mgmt. suggesting upside in Trusts, Partnerships and other business structures)."
"International revenues are revised lower primarily driven by a slower ramp of net adds in NA/UK, with a push back in new RoW market launches to FY24 (was FY23). In respect to ARPU, we incorporate lower UK benefits from Sep-21 price rises, while also include Nov-21 price rises in RoW/NA (phasing across FY22-23)," it added.
However, despite the above revisions, Goldman continues to see the company's revenue almost doubling between FY 2021 and FY 2024.
In light of this, it remains very positive on the Xero share price at the current level and continues to recommend it as a buy.
