Xero share price in focus amid strong FY22 revenue growth but full-year loss

Xero has released its full-year results…

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Key points

  • Xero has released its full-year results for FY 2022
  • The cloud accounting company has continued its strong revenue growth
  • However, it has also reported a full-year loss and weak cash flow

The Xero Limited (ASX: XRO) share price could be on the move this morning.

This follows the release of the cloud accounting platform provider's full-year results.

Xero share price on watch following full-year results

  • Total subscribers increased by 19% to 3.3 million
  • Operating revenue increased by 29% to NZ$1.1 billion (30% in constant currency)
  • Annualised monthly recurring revenue (AMRR) grew by 28% to NZ$1.2 billion
  • Total subscriber lifetime value (LTV) grew by NZ$3.3 billion or 43% to NZ$10.9 billion
  • EBITDA up 11% to NZ$212.7 million
  • Net loss after tax of NZ$9.1 million

What happened during FY 2022?

For the 12 months ended 31 March, Xero reported a 29% increase in revenue to NZ$1.1 billion. This was driven by solid growth across all markets, with the Australian and UK segments arguably the standout performers.

In Australia, revenue increased by 26% to NZ$483.3 million. Underpinning this growth were 229,000 net subscriber additions, bringing the total to 1.34 million subscribers.

Over in New Zealand, revenue increased by 15% to NZ$149.4 million. Xero reported 66,000 net subscriber additions, bringing the total to 512,000 subscribers.

In the UK, it delivered a 30% increase in revenue to NZ$291.6 million thanks to 130,000 net subscriber additions. This brought its total subscribers to 850,000. Management notes that subscriber additions were subdued in the third quarter but improved in the fourth quarter.

In the massive North America market, Xero still only has a modest market share. It reported a 28% increase in revenue to NZ$72.6 million after adding 54,000 net subscribers. This brings its North American subs to 339,000.

Finally, the Rest of the World segment reported an 85% increase in revenue to NZ$100 million. This was driven by the addition of 51,000 net subscribers, which took its total to 226,000. This segment was also boosted by the inclusion of the majority of Planday's revenues, which was acquired at the start of FY 2022.

Xero's earnings continued to grow during the financial year, albeit at a slower rate than its revenue. The company reported an 11% lift in earnings before interest, tax, depreciation and amortisation (EBITDA) to NZ$212.7 million.

Management advised that this softer growth reflects a balance between further gross margin expansion, which increased to 87.3%, and increased operating costs.

On the bottom line, Xero reported a net loss of $9.1 million and free cash flow of just $2.1 million. Though, this is consistent with Xero's preference to reinvest capital generated back into the business.

How does this compare to expectations?

Xero appears to have delivered a result largely in line with expectations, though maybe just a fraction short.

According to a note out of Goldman Sachs, it was expecting Xero to report revenue of NZ$1,108 million and EBITDA of NZ$218 million.

Management commentary

Xero's CEO, Steve Vamos, was pleased with the financial year and remains optimistic on the future. He said:

The value Xero brings to our small business customers and the trust they place in us is illustrated by this result. Our strong revenue and subscriber growth gives us confidence to continue to invest for growth consistent with our long-term strategy.

Our performance reflects the quality of our customer and partner relationships as more people realise the benefits that cloud accounting and digital tools provide." "We are committed to delivering the world's most insightful and trusted small business platform by focusing on driving cloud accounting adoption, growing the small business platform and building for global scale and innovation.

We continue to prioritise investment in building products and growing partnerships by investing cash generated to help deliver our strategy, drive long-term growth and meet customer needs.

Outlook

Xero hasn't provided any concrete guidance for FY 2023.

However, it advised that it will continue to focus on growing its global small business platform and maintain a preference for reinvesting cash generated.

Total operating expenses (including acquisition integration costs) as a percentage of operating revenue for FY 2023 are expected to be towards the lower end of a range of 80% to 85%. This compares to FY 2022's ratio of 84%.

Looking longer term, management revealed that its aspiration is to see significant improvement in its operating expense ratio "as Xero and the global cloud accounting industry continues to develop."

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Xero. The Motley Fool Australia has positions in and has recommended Xero. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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