Why did the Xero share price go backwards in May?

The Xero share price had a dismal month over May. Let’s check out why.

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Key points

  • The ASX 200 and most ASX 200 shares had a rather disappointing May 
  • But ASX 200 tech share Xero fared far worse 
  • Let's look at why this software company fared so poorly 

It’s been a tough start to June and winter for the Xero Limited (ASX: XRO) share price. At market close on Wednesday, Xero shares have fallen by a nasty 2.16% and are currently going for $87.36 each. That’s certainly a lot closer to Xero’s 52-week low of $75.80 than its 52-week high of $156.65.

But this latest fall is only an extension of the falls we saw for Xero shares over the month just gone. May was a hard month for most ASX 200 shares. The S&P/ASX 200 Index (ASX: XJO) lost a hefty 3.01% over May, with many ASX 200 shares recording falls far larger than that.

Xero, as a prominent ASX 200 tech share, often tends to move in an amplified pattern to the broader ASX 200. If the ASX 200 falls, Xero shares often fall by even more. Conversely, if the markets have a good time of it, Xero is usually outperforming.

So Xero shares began May at a price of $96.35 each. Yesterday, the cloud-based accounting software company closed at $89.27 a share. That’s a rather nasty fall of 7.33% – far more than the falls of the broader market over the month.

So why was Xero left out in the cold last month?

Why did the Xero share price have such a chilly May?

Well, it looks as though the company’s full-year results that Xero posted on 12 May played a large role here.

Back then, Xero dropped its full-year results for the 12 months to 31 March 2022. As we covered at the time, Xero announced a 29% increase in revenues to NZ$1.1 billion, as well as a 28% lift in annualised monthly recurring revenue to NZ$1.2 billion. The company also revealed that its total subscribers swelled by 19% to 3.3 million.

That led Xero to report an 11% rise in earnings before interest, tax, depreciation and amortisation (EBITDA) to NZ$212.7 million, which put its net loss at NZ$9.1 million.

As my Fool colleague observed when these results were released, it seems investors were expecting to see a little more from Xero. That might explain why the company’s shares fell around 10% at the time to what is now the company’s 52-week low.

Xero spent the following weeks bouncing back slightly from this dramatic fall. But it wasn’t enough to stop Xero shares from going backwards by 7.33% over the month just gone.

At the current Xero share price, this ASX 200 tech share has a market capitalisation of $13.06 billion.

Motley Fool contributor Sebastian Bowen 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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