Xero share price dives despite 90% half-year earnings boost

Xero's shares are taking a tumble today despite the company swinging into the profit zone.

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The Xero Ltd (ASX: XRO) share price is tumbling today.

Shares in the S&P/ASX 200 Index (ASX: XJO) tech stock closed yesterday trading for $14.72. In early morning trade on Thursday, shares are swapping hands for $108.74, down 5.2%.

For some context, the ASX 200 is up 0.3% at this same time.

This comes following the release of the business and accounting software provider's half-year results for the six months ending 30 September (H1 FY2024).

Despite some strong results, ASX 200 investors are hitting the sell button on Xero shares today. Expectations were high for the tech stock, following on a year of rocketing share price gains and promises from newly appointed CEO Sukhinder Singh Cassidy to make the company profitable and not pursue growth at any cost.

Read on for the highlights.

(*Note, all figures quoted below are in New Zealand dollars.)

Xero share price drops despite swing to profit

The Xero share price is sliding despite the company reporting a 21% year on year increase in operating revenue (20% in constant currency) to $800 million.

And earnings before interest, taxes, depreciation and amortisation (EBITDA) reached $206 million, up 90% from H1 FY2023.

The half-year also saw the company swing into the profit zone. Net profit after tax (NPAT) came in at $54 million, up from a net loss of $16 million in H1 FY2023.

Free cash flow increased year on year to $107 million, with a free cash flow margin of 13.3%.

As you'd suspect from these numbers, the company saw a big uptick in subscribers, with 3.95 million total subscribers as at 30 September representing a 13% year on year increase. This helped drive a 19% lift (22% in constant currency) in annualised monthly recurring revenue to $1.8 billion (22% in CC).

"We've demonstrated good momentum this half," CEO Sukhinder Singh Cassidy said of the strong results which have failed to lift the Xero share price today.

Singh Cassidy added:

As we look forward, we're sharpening our focus on Xero's key levers of growth as we aspire to become a higher performing SaaS company. We will continue to balance growth and profitability, while delivering more value to our customers.

What's next for the ASX 200 tech share?

Looking to what could impact the Xero share price in months ahead, management said that –  atop reinvestment in the company's strategic priorities – they are targeting an operating expense to operating revenue ratio in FY 2024 of around 75%.

That's down from an operating expense to operating revenue ratio of 79.1% in H1 FY2024 and down from 83.9% in H1 FY2023.

"The opportunity ahead is significant, and we remain focused on being the world's most insightful and trusted small business platform," said Singh Cassidy.

Xero share price snapshot

With today's big fall factored in, the Xero share price is still up a very healthy 55% in 2023.

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Xero. The Motley Fool Australia has positions in and has recommended Xero. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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