The Xero Limited (ASX: XRO) share price was on form last week and pushed higher.
This appears to have been driven by a rebound in the tech sector and the launch of new offering from the cloud accounting platform provider.
In respect to the latter, Xero has announced the launch of Xero Go.
What is Xero Go?
Xero Go is a new freemium mobile app in the UK that has been designed to serve the increased number of sole traders over the last two decades.
Xero notes that there are approximately 2.6 million sole traders in the UK. Its new freemium app will make it easier for them to access accounting software, expanding Xero's offering to provide a more cost-effective entry point into cloud accounting and digital record-keeping.
Xero's chief product officer, Anna Curzon, explained:
This is a product that caters to the entry-level accounting needs of the self-employed – a growing area of demand. So we wanted to offer early access to a product that caters to the basic accounting needs of self-employed businesses in the UK, the number of which has increased over the last 20 years, and also those of their advisors.
Xero Go helps businesses streamline the manual, time-consuming elements of being self-employed, while also providing accountants with accurate, clean financial data they need to service these clients.
The company also notes that Xero Go will support the self-employed to get ready for one of the largest changes to the UK tax system — Making Tax Digital for Income Tax Self Assessment. That is due to commence in April 2024 and will require self-employed individuals earning above £10,000 to keep digital records of income and expenses on compatible software.
Broker reaction
The team at Citi has been looking at the launch and see both positives and risks from it. Citi commented:
A key question post the announcement of Xero's new product aimed at sole traders, Xero Go, is whether it represents upside or downside to UK revenue forecasts given it is a lower ARPU offering.
Our analysis suggests that Xero Go represents upside to subscriber forecasts but is neutral from a revenue perspective when compared to current consensus forecasts due to the lower ARPU. However, there could be downside risk to long-term/terminal ARPU assumptions from a mix perspective but would depend on attach rates of add-ons.
Nevertheless, Citi remains bullish on the Xero share price. It has retained its buy rating and $108.00 price target.
This implies potential upside of ~16% for investors over the next 12 months.
