The Xero Limited (ASX: XRO) share price had a day to forget on Thursday.
A half-year earnings miss and the surprise exit of its CEO led to the cloud accounting company's shares falling over 10% to $64.74.
This means the Xero share price is now down almost 56% since the start of the year.
Is the Xero share price weakness a buying opportunity?
According to a note out of Goldman Sachs, its analysts believe that investors should be picking up shares while they're down.
This morning the broker has reiterated its buy rating with an improved price target of $115.00.
Based on the current Xero share price, this implies potential upside of almost 78% for investors over the next 12 months.
What did the broker say?
While Xero's earnings fell well short of the broker's estimates, it was pleased with its top line performance and particularly its average revenue per user (ARPU) metric. It commented:
This momentum is continuing, with exit ARPUs in both ANZ & International well above blended ARPU during the half (despite. c.NZ$10mn of Xerocon revenues). This suggests a strong revenue trajectory into 2H23, aided by further price rises (NA in Nov, Partner in Mar) ongoing transaction growth, partly offset by spot FX.
Goldman also highlights that while some may doubt Xero's ability to deliver improvements in its subscriber growth in the UK and North America during the second half, it believes it is possible. The broker explained:
Finally, the expected improvement in 2H sub growth in the UK & NA will likely be viewed with some skepticism, but should benefit from improved go-to market and the revised MTD compliance changes in November.
Its analysts also note that Xero's new CEO, Sukhinder Singh Cassidy, will be based in the United States. They suspect this could be a sign that Xero will be increasing its focus on this massive market.
Ms Singh Cassidy will be US domiciled, suggesting this market could be an increasing focus for XRO (large TAM, but in our view the most competitive for Xero.
All in all, the broker believes Xero is well-placed for long term growth and great value at current levels.
