Xero Limited (ASX: XRO) shares are having a strong session on Thursday.
At the time of writing, the cloud accounting company's shares are up 7% to $101.00.
Why are Xero shares racing higher?
Investors have been scrambling to buy Xero's shares this morning after its full-year results impressed the market.
For the 12 months ended 31 March, Xero posted a 28% increase in operating revenue to NZ$1.4 billion, a 26% lift in annualised monthly recurring revenue to NZ$1.55 billion, and a 45% jump in adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) to NZ$301.7 million.
This was driven by solid growth in subscribers and average revenue per user across both its ANZ and International segments.
Also boosting the Xero share price was the company's operating expense to operating revenue ratio. It came in at 80.7% excluding restructuring costs for FY 2023, which was consistent with its guidance. Pleasingly, management expects this to fall again to 75% in FY 2024.
Broker response
Analysts at Goldman Sachs, which are bullish on Xero shares, have responded positively to the release. The broker commented:
XRO reported FY23 Sales/EBITDA/NPAT +28%/+42%/+NZ$39mn vs. pcp to NZ$1,400mn/NZ$302mn/+NZ$30mn, which was -1%/+2%/-4% vs. GSe (Adjusting for restructuring/one-offs). Cash conversion was strong (GOCF +49% YoY to NZ$390mn, = 102% of Adj. EBITDA excl. SBP), with XRO net cash increasing to NZ$97mn (vs. NZ$24mn at 1H23) with $1.1bn of liquidity.
(1) 2H23 Sub growth was marginally ahead of our expectations (+245k vs. GSe +240k, VA Consensus +238k) with the highlight the stronger UK performance (+76k 2H23 net adds, vs. GSe +71k, +44/65k in 1H23/2H22), while NA performance was ahead of GSe but in-line with guidance. ANZ/RoW slightly below; (2) Despite elevated macro risk monthly churn was lower in international (1.21% vs. 1.26% in 1H23), while marginally higher in ANZ (0.68% vs. 0.66% in 1H23); (3) ARPUs were broadly-inline, with solid exit RR's given recent pricing increases. Platform revenue growth decelerated to +26% YoY vs. +29% 1H23 (CC); (4) GP margins were flat yoy (in-line with vs. GSe); (5) Xero delivered solid cost control with 80.7% operating cost as a % of sales (vs. GSe 81.6%, implies = 77.9% 2H23, vs. prior guidance low end of 80-85% range for full year & c.80% in 2H23).
