Xero announces HY17 results, Australian subscribers grow 45%

Xero Limited (NZX: XRO; ASX: XRO) today reported its half-yearly earnings to September 30, 2016, executing strongly on diversified global growth while making progress towards EBITDA break-even.

Achieving milestones of annualised committed monthly revenue of $303.2 million and operating revenue of $137.2 million, a 48% year-on-year increase, Xero’s paying subscriber base reached 862,000, and reached a total lifetime value of $1.7 billion. Revenue growth rates, while strong, were adversely impacted by the strengthened New Zealand dollar.

Xero remains focused on driving diversified global growth and executing on its business strategy, including building towards a high-margin business.

“Our focus is to build a sustainable global business with high margins, while managing our cash. Our revenue growth has allowed us to continue the significant investment in our platform, back-office and team to support our global footprint,” said Rod Drury, Xero CEO and Founder.

“We are thrilled to deliver strong results while we build the long term foundations for scale, including a complete re-platforming of the business.”

Recently announced changes to Xero’s organisational structure will support the next growth phase and the company’s strategy of reaching $1 billion of operating revenue. Leveraging the growing management capability in each of Xero’s operating geographies, the company is implementing a flatter organisational structure with Country Managers reporting directly to the CEO.

Key strategic highlights

  • Xero’s transition to AWS is near completion, enabling the company to leverage machine learning technology, and deliver fast-paced innovation, improved margins and increased uptime. While completing our move to AWS, we’ve developed hundreds of product features and continued to drive the innovation agenda in the industry
  • Several financial web partnerships formed with – Wells Fargo in the U.S., UOB in Singapore, Commonwealth Bank of Australia, Barclays in the UK and HSBC in Hong Kong launching in 2016
  • Xero is gaining traction in the U.S. market with strategic partnerships with top financial institutions and top accounting firms. Future investments in U.S. operations will build scale out of Denver to support the hubs in San Francisco, New York, Austin and Seattle
  • Global recognition for customer service, product innovation and business leadership including the Canstar Award for Accounting Software for Small Business for the second consecutive year in Australia, UK Cloud Awards for Financial Product of the Year, and New Zealand Trade and Enterprise International Business Awards finalist

Innovation shifts up a gear
Enabled by a comprehensive transition to AWS, Xero is well positioned to capitalise on machine learning, which we believe will redefine accounting in future years.

“It is a huge achievement to get through this massive transition. We expect all business software vendors to re-platform over the next few years so they too may take advantage of the commoditised innovation services in the larger public cloud platforms,” Drury said.

“With the right tools, capital, and financial services, we have the potential to materially improve productivity of small businesses globally – which make up 55% of the global economy, and are the largest job generators and contributors to GDP.

“The network effect of strategic partnerships with top banks, financial institutions and global technology companies, combined with Xero’s product and platform, has created an opportunity to pull away from the competition and leverage the significant white space in the global small business market.”

In the first half of this year, Xero has continued to lead the market with disciplined investments in product and distribution channels while delivering another period of industry-leading growth in revenue and subscribers.

The adoption of cloud software is in its early stages in most markets but is accelerating. Xero has significant opportunities ahead, with a multi-billion dollar global addressable market, an established product and scalable platform, and a focus on strong execution and cash discipline.