The Xero Ltd (ASX: XRO) share price has already been an incredible long-term investment. In the last five years, it has delivered capital gains of 92%.
This business is one of the world's leading accounting software businesses. But, it's a lot more than just accounting software. It also helps businesses run their payroll, the accounts payable and receivable, business performance and so on.
I believe there is more to come from the ASX growth share for a few different reasons.
Image source: Getty Images
Extremely loyal subscribers
One of the main positive points about Xero shares is how much the subscribers seem to love the product.
The key metric that loyalty can be seen with is the churn rate of subscribers. In recent years, Xero has only lost around 1% of its subscribers each year, which is an incredibly high level.
Not only is this a great sign of customer satisfaction and software quality, but it also means the business has likely won a customer for the long-term each time a new subscriber signs up.
Rising annualised revenue
The growth of the company's subscriber base is driving significant annual revenue growth.
In the recent FY25 result, the business reported that its operating revenue increased by 23% year-over-year and the annualised monthly recurring revenue rose by 22% year over year to $2.39 billion.
Seeing as revenue is a key driver of net profit, this is a great sign. Xero reported that the number of subscribers increased by 6% year-over-year to 4.4 million.
It was also helped by the fact that its average revenue per user (ARPU) is growing, partly due to price increases. In FY25, the ARPU grew by 15% to $45.08.
Rising profit margins
The last positive I want to highlight is the improving profitability of the business.
If profit grew at the same pace as revenue, then Xero shares would have a promising outlook.
But, the company's profit is growing much faster because of operating leverage and rising profit margins.
In the FY25 period, the business saw its gross profit margin increase to 89%, up from 88.2% in the prior corresponding period.
The operating leverage enabled operating profit (EBITDA) to increase 28%, net profit grew 30% and free cash flow soared 48% year over year.
I'm expecting significant profit growth over the next three years from Xero, which is why I think the Xero share price could continue to rise in the coming years.
