Next week will be a big one for Xero Ltd (ASX: XRO) shares and its shareholders.
That's because the cloud accounting platform provider will be releasing its FY 2024 results on Thursday 23 May.
Ahead of the release, let's take a look at what analysts are expecting from the market darling tech stock.
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Xero results preview
According to a note out of Goldman Sachs, its analysts are expecting the company to deliver revenue slightly ahead of consensus estimates.
The broker has pencilled in a 22% increase in revenue to NZ$1,709 million. The consensus estimate is for revenue of NZ$1,696 million.
Goldman also expects Xero's earnings to grow quicker than the market is expecting. It has pencilled in EBITDA of NZ$480 million for FY 2024. This represents a 59% increase on the prior corresponding period and is ahead of the consensus estimate of NZ$469 million.
This will mean an operating expense ratio (as a percentage of sales) of 75.3% for the period, which is broadly in line with management's target. Though, Goldman expects this number to reduce into the low 70s in FY 2025 and will be looking for this in its guidance statement. In fact, the broker referred to this as one of its "key focus points."
Another key focus point will be its second half subscriber growth. Goldman is expecting subs growth in the UK and North America of 50,000 and 23,000, respectively.
In addition, it thinks that average revenue per user (ARPU) trends will be worth watching, "particularly any underlying expansion outside of price growth – which would suggest strong mix/upsell/transactions growth."
It also wants to see if management reiterates its "Rule of 40 or greater aspiration, and whether this could be achieved in FY25."
Should you buy Xero shares?
Goldman thinks that Xero shares would be a great option for investors right now.
The broker has reiterated its conviction buy rating and $156.00 price target on them. This implies a potential upside of 28% for investors over the next 12 months.
Commenting on its buy recommendation, the broker said:
Xero is a Global Cloud Accounting SaaS player, with existing focuses in ANZ, UK, North American and SE Asian markets. We see Xero as very well-placed to take advantage of the digitisation of SMBs globally, driven by compelling efficiency benefits and regulatory tailwinds, with >100mn SMBs worldwide representing a >NZ$100bn TAM. Given the company's pivot to profitable growth and corresponding faster earnings ramp, we see an attractive entry point into a global growth story with Xero our preferred large-cap technology name in ANZ – the stock is Buy rated (on CL).
