The Xero Limited (ASX: XRO) share price has gained more than 28% over the past year, and it looks set to continue its strong run.
The accounting software provider's customer base has been steadily growing, with the company now claiming about 4.2 million subscribers across its key markets in Australia, New Zealand, the United Kingdom, and North America.
The headline figure for Xero's latest half-year results, released in November, touted the company's 25% revenue increase, resulting in free cash flow almost doubling to around $200 million.
As such, Xero is well placed to expand its customer base, with a total addressable market encompassing 100 million businesses.
And while those numbers speak volumes, one metric really stands out for me.
Xero's user experience fosters customer retention
Over the years, as part of my research in the accounting tech space, I've interviewed dozens of accountants and users of various accounting platforms, including Sage Group (LSE: SGE) and QuickBooks, owned by Intuit Inc (NASDAQ: INTU).
And of those I spoke with who were Xero customers, it's difficult to recall any intending to move away from Xero or had a negative experience with the company.
In fact, many accountants I spoke with discussed their experiences with Xero with enthusiasm, some with passion.
I recall one accountant being so pleased with Xero that she not only invested her money in the company but also set up trading accounts for her kids so she could buy Xero shares for them.
Xero continues to receive positive feedback from users, achieving a 4.4/5 rating from more than 3,000 comments on the software reviews platform Capterra. Although some users have highlighted issues, such as the need for the company to improve its customer support, overall, this is a company that has improved the lives of its users.
It has done this by producing a solid product that resonates with users.
Stickiness, or a company's ability to lock in customers for the long run, is a key indicator of a business's long-term prospects, particularly for a SaaS company fuelled by recurring revenue. With a subscriber retention rate of around 99%, it seems Xero's customers are loyal, and enthusiasm for Xero's products shows no obvious signs of waning.
That retention rate also gives more substance to the rate of subscriber growth and how that will translate to future revenues.
Xero's steady leadership
Since succeeding Steve Vamos as CEO in February 2023, Sukhinder Singh Cassidy has proven to be a steady hand at the helm of Xero.
Another key appointment will take effect in April, when former Teradata Corp (NYSE: TDC) CFO Claire Bramley will become Xero's Chief Financial Officer.
It's unlikely that leadership change will have a material impact on Xero's long-term growth prospects, with current CFO Kirsty Godfrey-Billy expected to be available to help with the transition through to the end of June 2025.
With all that said, I still rate Xero as a buy.
