The Xero Limited (ASX: XRO) share price has had a rough time over 2022, falling by over 40%. However, according to experts, the ASX tech share could be a leading opportunity for the next year.
Xero is one of the biggest technology businesses on the ASX, with a market capitalisation of $12.6 billion.
Like many other businesses, the Xero share price has sunk amid rising interest rates and strong inflation.
While a lower price doesn't automatically make a business a better investment, it can certainly give a bigger margin of safety.
Broker ratings
Citi currently has a buy rating on Xero, with a price target of $108. This implies a potential rise of around 28% over the next year. A key reason for that optimism is the company's plans to increase prices for subscribers in New Zealand, Australian and United Kingdom markets.
As I reported in June, these increases are for high-single-digit to mid-teen increases in percentage terms.
With these increases, Citi believes the average revenue per user (ARPU) will increase by high single digits, which will help grow operating revenue. The broker notes that Xero is increasing prices more regularly, which could suggest Xero believes it has a strong market position.
Morgans is another broker with a positive outlook. The broker has an add rating on Xero and a price target of $90.25. Ongoing growth of subscribers and ARPU could help things.
Latest growth numbers
The latest that investors have heard is Xero's FY22 result. Many of its numbers went the right way.
Operating revenue rose by 29% to NZ$1.1 billion. Total subscribers rose by 19% to 3.3 million. And annualised monthly recurring revenue (AMRR) rose 28% to NZ$1.2 billion. The ARPU increased 7% to NZ$31.36. Xero's gross profit margin went up 1.3 percentage points to 87.3%. It also said that the total lifetime value of subscribers jumped 43% to NZ$10.9 billion. Further growth of these statistics could be supportive for the Xero share price.
Xero CEO Steve Vamos spoke of why the company is seeing growth and what it's planning to do:
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 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.
Xero share price snapshot
Over the past month (since market close on 14 June), the Xero share price has risen by nearly 3%.
