Company Reports

Xero shares fell more than 25% in recent weeks after social media stirrings in the UK following two communication mishaps. Social media posts that hint at Xero trying to disintermediate accountants are potentially damaging to its accountant customer relationships.

We expect Xero’s near- and medium-term strategic focus to revolve around rationalizing its areas of investment, especially against a backdrop of normalizing demand for business software.

Fiscal 2026 adjusted EBITDA increased 18% to NZD 757 million, driven by a 31% increase in revenue and margin compression from the Melio acquisition. Organically, adjusted EBITDA grew 30%. Shares fell sharply as competitor QuickBooks launched an integration with AI giant Anthropic.

We expect Xero’s near- and medium-term strategic focus to revolve around rationalizing its areas of investment, especially against a backdrop of normalizing demand for business software.

Xero held an investor briefing to share more details on its AI efforts and to update the market on progress and plans for Melio, the US-focused payments company it acquired last year. Full-year guidance was reiterated.

We expect Xero’s near- and medium-term strategic focus to revolve around rationalizing its areas of investment, especially against a backdrop of normalizing demand for business software.

We expect Xero’s near- and medium-term strategic focus to revolve around rationalizing its areas of investment, especially against a backdrop of normalizing demand for business software.

Xero's half-year results for fiscal 2026, which ended in September, showed an 18% increase in revenue in constant currency, driven by a 10% increase in subscribers and an 8% increase in average revenue per user. Shares fell 7% on the result.

We expect Xero’s near- and medium-term strategic focus to revolve around rationalizing its areas of investment, especially against a backdrop of normalizing demand for business software.

Xero is acquiring US-focused financial technology firm Melio Payments to try to break into the US market, following insufficient organic traction there thus far.

Xero has acquired US-based fintech Melio Payments for USD 2.5 billion upfront with an additional USD 500 million in contingent consideration, deferrals, and rollovers. The deal will be funded 50% through an equity raise and implies an enterprise value/annualized revenue multiple of up to 16 times.

We expect Xero’s near- and medium-term strategic focus to revolve around rationalizing its areas of investment, especially against a backdrop of normalizing demand for business software.

Xero's fiscal 2025 EBITDA increased 28% to NZD 638 million. The company reported a 23% increase in revenue on the prior year, or 20% in constant currency. The result was driven by growth in average revenue per user of 15%, while subscribers grew by 6%.

We expect Xero’s near- and medium-term strategic focus to revolve around rationalizing its areas of investment, especially against a backdrop of normalizing demand for business software.

US President Donald Trump's tariffs have rattled global markets. Tariff rates have been raised to levels not seen in a century, which may set in motion a cascade of supply/demand side shocks, depending on how long and high these tariffs stay.

We increase our fair value estimate for narrow-moat Xero by 2% to AUD 92 per share ahead of its fiscal 2025 results to be released on May 15, 2025. The increase is driven by the time value of money, with our forecasts intact. Shares screen as significantly overvalued at current prices, as investors are baking in significant growth from the US. However, we believe this market will not generate positive returns for the company.

We expect Xero’s near- and medium-term strategic focus to revolve around rationalizing its areas of investment, especially against a backdrop of normalizing demand for business software.

In our special report 'Uncovering the Hidden SaaS Profits' we discuss why software-as-a-service companies, can be structurally underestimated by the market and how investors can use this market inefficiency to find opportunities. We believe narrow moat SiteMinder provides such an opportunity, as it is trading well below our AUD 10 per share fair value estimate.

We raise our fair value estimate for narrow-moat Xero by 6% to AUD 90 per share following first-half fiscal 2025 results. The company saw an acceleration in revenue growth to 25% on the prior corresponding period, or pcp, due to strong price increases. But we don’t expect the pace of price increases can be maintained. At current prices, Xero shares screen as materially overvalued, at almost double our fair value estimate.

We expect Xero’s near- and medium-term strategic focus to revolve around rationalizing its areas of investment, especially against a backdrop of normalizing demand for business software.