Why Xero shares are mopping the floor with the benchmark today

Xero shareholders will be a very happy bunch today.

Sebastian Bowen

Author Bio Sebastian Bowen has been a Motley Fool contributor since late 2018. Sebastian found his passion for writing and educating others about shares and all things finance after completing his studies in political, economic and social science and enjoys bringing this passion to life at the Fool. His investment philosophy is a simple one – buying high-quality companies at prices that make sense. When he’s not researching his next investment at all hours of the morning, Sebastian enjoys classic movies and likes to unwind with a good book, newspaper or record. Areas of Expertise Dividend investing ETFs Education Bachelor of Political, Economic, and Social Sciences (Government and International Relations), University of Sydney Social Media X/Twitter Favorite Investment Quote "In the short run, the market is a voting machine, but in the long run, it is a weighing machine." – Benjamin Graham

Published October 30, 2023 3:07 pm AEDT

It's been another horror start to the trading week so far this Monday for the S&P/ASX 200 Index (ASX: XJO). At present, the index has fallen by another 0.65% and hit a new 52-week low this morning. But let's talk about the Xero Limited (ASX: XRO) share price.

Xero shares are faring much better than the broader market. In fact, they are smashing the ASX 200.

While the ASX 200 has given up just over half a percentage point, Xero shares have surged by a pleasing 3.08%. That puts this ASX 200 tech share and accounting software pioneer at $107.76 a share.

But what is sparking this dramatic departure from the broader market for this tech darling today?

Well, it doesn't seem to have anything to do with Xero itself. There hasn't been any ASX news out of the company directly for more than a week now.

However, we can point to two developments that might explain why Xero shares are so in demand today.

Two colleagues high five each other as they sit side by side at a long desk in front of their laptop computers in an office environment. — Image source: Getty Images

Why are Xero shares defying the ASX 200 to surge higher?

Firstly, ASX tech shares are proving to be exceptionally resilient to the broader market sell-off this Monday. While the ASX 200 has shed 0.52%, the S&P/ASX 200 Information Technology Index (ASX: XTJ) is up a rosy 1.03%.

So it's not just Xero that is bucking the gloom. Other major winners from this space today include WiseTech Global Ltd (ASX: WTC), Life360 Inc (ASX: 360) and Data#3 Ltd (ASX: DTL).

This may be a response to some big news on the US markets last week. On Friday, tech giant Amazon reported its latest earnings. These earnings saw the global titan report year-over-year quarterly revenue growth of 13% to US$143.1 billion, while earnings per share rocketed an incredible 236% to US$0.94 per share.

This prompted the Amazon stock price to surge 6.83% on Friday to US$127.74 a share. This might be what is at least helping to buoy ASX tech shares today, given Amazon's status as a global technology leader.

Secondly, we've also recently seen some love for Xero coming out of an ASX broker. As we covered last week, broker Citi has given Xero a buy rating. That came alongside a 12-month share price target of $141.90 for the software company. If realised, that would see Xero shares appreciate by a chunky 32% or so from the prices we see today.

Here's why Citi stated they are so bullish on the Xero share price at its current level:

We see potential for ANZ subs growth to surprise on the upside in the 1H result, with Xero noting that SMBs have been resilient and Xero pointing to further growth opportunities in both markets.

While early in the monetisation journey, there seems to be an increased focus on increasing the attach rate of payments which we see as positive for ARPU [average revenue per user] (and stickiness) over the longer-term.

So it seems likely that these two factors are at least partially responsible for the impressive gains we are seeing with Xero shares today. No doubt investors will be delighted. As of today, Xero is now up a happy 53.4% year to date in 2023 so far.

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