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Xero posts loss on increased investment

Xero shares sunk on 6% on Thursday after it reported its half-year earnings for FY22. The accounting software provider posted a net loss of NZ$5.92 million for the six months to 30 September 2021, significantly lower compared to last year's NZ$34 million net profit.

The loss came despite Xero delivering a strong performance in operating revenue, which grew 23% to $505.7 million, subscribers, which increased by 23% to 3.0 million, and AMRR, which surpassed $1 billion for the first time. The bottom line result due to an increased level of investment spend across both sales and marketing and product development. Xero noted the movement in those metrics reflecting the heightened focus on cost management in response to the initial impacts of COVID-19 in the prior comparable period.

Xero said that while conditions varied across its markets, the strength of its Software as a Service metrics were demonstrated by positive trends over the period, including increases in average revenue per user, gross margin and churn. These contributed to a substantial increase in total LTV to $9.9 billion. In addition, greater clarity and renewed confidence in the economic environment over the past 12 months drove increased reinvestment into customer growth opportunities. This included increased spend on subscriber addition initiatives and innovative brand awareness campaigns in a number of markets.

Product and technology investment in the period continued in line with the company’s long-term ambitions including core accounting and platform enhancements. Product design and development costs increased by 51% to $166.8 million, representing 33% of operating revenue which was similar to the prior period.

Xero also commented on its three recent acquisitions, Planday, Tickstar, and Waddle, noting they made good progress in the period, collectively contributing $19 million of operating revenue. The acquisitions added new revenue streams and entry into new categories.

CEO Steve Vamos said: “Small businesses around the world increasingly recognise the critical importance of digital tools to help them adapt to, and succeed in a changing operating environment. This is reflected in Xero’s half-year 2022 performance, where we delivered strong revenue and subscriber growth.”

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