Xero Ltd (ASX: XRO) shares are seeing mixed trading on Friday. They reached a high of $172.60 around noon before sliding 0.75% lower to $169.74.
Zooming out, the ASX 200 tech share has been on an absolute tear, rising by 69.7% over the past 12 months.
Xero shares hit a new record high of $172.94 yesterday after the cloud accounting software provider released its 1H FY25 results.
Investors were clearly impressed with the 25% increase in half-year operating revenue to NZ$995.9 million and a 76% lift in net profit after tax (NPAT) to NZ$95.1 million.
So, is it too late to buy Xero shares?
Josh Gilbert, eToro market analyst, shares his perspective.
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Xero shares keep rising amid 'huge opportunity globally'
Gilbert said Xero's half-year results were better than expected. He added that yesterday's 5.59% boost for Xero shares reflected investors' confidence that profits would continue to grow.
He said:
Margins continued to impress as its costs-to-revenue ratio improved, reaching 71%, much lower than the 79% last year. This drove EBITDA up 51% year over year and is a great sign that we could see its bottom line keep growing, which may signal earnings upgrades down the track.
Gilbert noted the 22% increase in annual recurring revenue (ARR) but said the report wasn't all rosy.
Overall international revenue came in below expectations, despite strength in the UK.
Revenue in North America, a key focus for new CEO Sukindher Singh Cassidy also missed expectations while subscriber growth fell, which may cast a slight shadow of disappointment amongst a solid result.
Price increases help offset slower subscriber growth and with ARR growing at a solid click, for now, a slowdown in subscriber growth may not worry investors.
Gilbert said Xero has a large total addressable market (TAM) and a high-quality product, as demonstrated by the company's impressive customer retention rates.
Therefore, there is a huge opportunity globally if they can execute their global expansion strategy in the right way. It doesn't need to take over in the UK or the US, but it can simply capture more of the vast market share on offer, which is completely plausible and will continue to drive growth.
All of this obviously bodes well for the Xero share price in coming years.
Gilbert isn't the only analyst who thinks Xero has more room for growth.
'Attractive entry point' into a global growth story
Top broker Goldman Sachs has released a new note on Xero following the 1H FY25 report.
The broker reaffirmed its conviction buy rating and maintained its 12-month price target of $201.
In their note, Goldman analysts Kane Hannan, Annabel Li, and Jamie Laskovski wrote:
We see Xero as very well-placed to take advantage of the digitisation of SMBs [small and midsized businesses] 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.
