The Xero Ltd (ASX: XRO) share price is taking off on Thursday morning.
At the time of writing, the cloud accounting platform provider's shares are up 6% to a record high of $171.49.
This follows the release of the company's half year results this morning.
Xero share price jumps on strong half year results
- Subscribers up 6% to 4.186 million
- Operating revenue up 25% to NZ$995.9 million
- Average revenue per user up 15% to NZ$43.08
- Annualised monthly recurring revenue of NZ$2.16 billion
- Adjusted EBITDA up 52% to NZ$311.7 million
- Net profit after tax up 76% to NZ$95.1 million
What happened during the half?
For the six months ended 30 September, Xero reported a 25% increase in operating revenue to NZ$995.9 million. This was driven by a 6% increase in subscribers and 15% lift in average revenue per user. Xero reported net subscriber additions of 186,000 (excluding the removal of long idle subs).
Things were even better for its earnings with its adjusted EBITDA up 52% to NZ$311.7 million and its net profit after tax up 76% to NZ$95.1 million. This reflects its strong top line growth combined with an operating expense to revenue ratio of 71.2%.
This also resulted in free cash flow increasing to NZ$208.7 million and a free cash flow margin of 21.0%, improving from 13.3% in the prior period. Management notes that this led to Xero continuing to deliver a greater than Rule of 40 outcome of 43.9%.
Management commentary
Xero's CEO, Sukhinder Singh Cassidy, was pleased with the result. She said:
This result reinforces our ability to deliver on our strategy. We have delivered a solid performance across the board this half including continued strong revenue growth, and a greater than Rule of 40 outcome for the second period running. We're executing our strategy with focus and purpose, through disciplined investment aligned to our strategic priorities. This has supported an improvement in product velocity for customers in line with our Win the 3×3 strategic priority to build winning solutions for the three most critical small business jobs in our three largest markets.
Broker reaction
Goldman Sachs was pleased with the result. It commented:
XRO reported 1H25 Sales/Adjusted EBITDA/NPAT +25%/+52%/+76% vs. pcp to NZ$996mn/NZ$312mn/NZ$95mn, which was -3%/+10%/-8% vs. GSe and was +0%/+10%/-12% vs. VAe. Xero strongly delivered on its rule of 40 aspiration again in 1H25 at 43.9% – but did benefit from a c.2% increase in SBC (to 8.9% of revenue).
It currently has a conviction buy rating and $201.00 price target on its shares.
Outlook
Xero advised that its total operating expenses as a percentage of revenue is expected to be around 73% in FY 2025. This is up from 71.2% during the first half, implying a particularly strong second half.
It also revealed that FY 2025 product design and development costs as a percentage of revenue are now expected to be broadly similar to FY 2024.
The Xero share price is up over 70% since this time last year.
