Shares in accounting software company Xero Ltd (ASX: XRO) have had a tough start to the year.
The Xero share price is now down almost 15% in 2026, and in the latest session it has fallen 4.77% to $98.69. Importantly, that move pushed the stock below the $100 psychological level for the first time since November 2023.
So why is Xero under pressure, and does this move signal something more serious for investors?
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Earnings worries are weighing on sentiment
One key reason behind the weakness is earnings.
Xero continues to grow revenue at a healthy pace as more small businesses move to cloud accounting. Subscriber numbers are rising, and customer retention remains strong.
However, profit growth has fallen short of expectations. In its most recent results, Xero reported earnings per share (EPS) below what the market was looking for, despite higher revenue and a higher overall profit.
Investors also raised questions around costs and margins, particularly as Xero continues to spend heavily on product development and its US expansion. While these investments may support long-term growth, they have weighed on near-term profitability.
Big US expansion comes with risks
Another factor weighing on sentiment is Xero's push into the United States.
The company has invested heavily to expand its presence in the US market, including major spending on payments and platform capability. Over the long term, this could unlock a much larger growth opportunity.
In the short term, though, investors are focused on higher costs and margin pressure. It appears the market wants clearer evidence that this spending will translate into stronger profits, not just revenue growth.
Global tech weakness is not helping
It is also hard to ignore the global backdrop.
Technology stocks have been volatile, particularly in the United States. As the old investing saying goes, when the US sneezes, the rest of the world often catches a cold.
As a well-known ASX technology stock, Xero is especially sensitive to changes in global risk sentiment. Recent weakness in offshore tech markets has likely added to the selling pressure on its shares.
The big picture
Despite the recent fall, Xero remains a high-quality business with recurring revenue, strong brand recognition, and a long growth runway.
That said, investors are becoming more cautious about profitability and execution. In my view, the move below $100 reflects hesitation rather than panic.
For investors, the key issue now is whether earnings growth can catch up to expectations. If it does, confidence could return. If not, the share price may continue to drift lower.
