Xero Limited (ASX:XRO) share price slumps despite delivering first positive EBITDA

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ASX:XRO

The Xero Limited (ASX:XRO) share price has fallen $1.08 or 2.62 per cent to $40.20 in early Thursday trade after the cloud accounting software company reported full year revenue jumped 38 per cent higher, leading Xero to report its maiden positive EBITDA.

Xero was included in the S&P/ASX 100 Index on 9 March 2018.

Xero has continued to grow in FY18, adding 351,000 subscribers, taking the total subscribers to almost 1.4 million.

This helped Xero report full year operating revenue up 38 per cent to $NZ406.6 million and positive EBITDA of $NZ26.0 million for FY18, compared to a $NZ(28.6) million loss in FY17.

Cash flows from operating activities were $NZ41.2 million for FY18, and gross margins improved by 4 percentage points to 81 per cent.

A market leader with strong recurring revenue

As a subscription business with high levels of retention, Xero has a strong level of recurring revenue. Xero reported its annualised monthly recurring revenue has grown by 33 per cent to $NZ484.4m, already 19 per cent higher than FY18’s operating revenue.

Xero is the cloud accounting market leader in its established markets of Australia and New Zealand, with subscriber growth in the region of 28 per cent to 884,000 and revenue growth of 33 per cent.

It is also the market leader in the UK with a 47 per cent increase in subscribers to 312,000. Xero continued to make headway in North America, adding 40,000 subscribers (up 43%) to 132,000 subscribers.

Xero Chief Executive, Steve Vamos said: “Xero has delivered another impressive full-year result driven by subscriber and revenue growth with excellent operating discipline, reflecting the strength of our value proposition and business model.”

“Xero is a catalyst in the changing relationships between financial institutions, financial
advisory services, accountants, and small businesses. In the large, under-served small business market, there is a vast growth opportunity that we are addressing as we continue to expand the Xero product offering.”

Outlook

Xero is forecasting cash outflow in FY19 will reduce from FY18. It is managing the business to cash flow break-even within its current cash balance (without drawing on its debt facility) through operational efficiencies.

Following cash flow break-even, Xero says it intends that surplus cash flow will be reinvested, subject to investment criteria, to drive long-term shareholder value.

Xero share price

The Xero share price has been on a roll. Before today, Xero shares were up 44 per cent so far in 2018, and they had doubled over the past 12 months.

As depicted by this handy graphic, Xero is one of the fastest growing ASX tech stocks, growing faster than fellow popular ASX 200 tech stocks SEEK Limited (ASX:SEK), REA Group Limited (ASX:REA) and Carsales.Com Ltd (ASX:CAR).

ASX Tech Stocks

  

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Bruce Jackson has 30 years of hands on investing experience. He is passionate about stock market investing, running his own portfolio and SMSF. His focus is on small cap growth stocks. You can contact Bruce at brucej@thecapitalclub.com.au