The Xero Ltd (ASX: XRO) share price has performed very well in the last 12 months, rising by more than 40%, as the chart below shows. I think there are plenty of reasons why the ASX tech share has ongoing growth potential from here.
Xero provides cloud accounting and business operations software in multiple countries worldwide, including its biggest markets: Australia and New Zealand, the United Kingdom, and the United States.
There's a lot to like about the business, with three key factors that stand out to me.
Image source: Getty Images
Strong revenue and subscriber growth
Xero's growth over the last decade has been spurred by a significant growth in subscribers who are attracted to its simplicity, efficiency tools, and value.
In the first half of FY25f, the company reported a 6% increase in subscribers to 4.19 million, which also included the removal of 160,000 long-idle subscribers.
Looking at the individual regions, Xero added 84,000 subscribers in Australia to reach 2.5 million and 9,000 extra subscribers in New Zealand to reach 614,000. In the UK, it added 49,000 subscribers to reach 1.1 million, 12,000 subscribers in North America to reach 365,000, and 13,000 for the rest of the world to reach 278,000.
This subscriber growth contributed to Xero's HY25 revenue growth of 25% to $996 million.
I think its underlying subscribers and revenue can continue to rise strongly in 2025.
Customer loyalty
Subscribers seem to like what Xero offers because the company had a very high customer retention rate of 99% in the FY25 first-half result. The customer loss rate has been 1% or less for a number of years.
With its highly loyal customer base, Xero has felt confident about passing on price increases for businesses in Australia, New Zealand, and the UK in recent years. This helps boost the average revenue per user (ARPU). In HY25, the ARPU grew by 15% to $43.08, and I think the APRU can rise further over 2025, which could be useful for Xero shares.
This combination of a rising ARPU and an ongoing loyal customer base is boosting the company's total lifetime value of subscribers, which rose 15% to $17 billion in HY25.
Rising profit margins
As a software business, delivering the service to subscribers doesn't cost much. That's why Xero reported a gross profit margin of 88.9% in HY25, which was higher than 87.5% in HY24.
Revenue is rising faster than costs, so the company's margins are growing at a nice pace. This is helping the company's other profit lines rise faster than revenue.
While revenue grew 25%, operating profit (EBITDA) grew 52% to $312 million, net profit after tax (NPAT) rose 76%, and free cash flow jumped 96% to $209 million.
Investors typically value a business based on its profit, so this rapid profit growth could significantly support the Xero share price over 2025 and beyond.
