In major news on Australian stocks, Xero Limited (AU:XRO) shares soared by over 9% as of writing after the company’s earnings (adjusted EBITDA) jumped by 75% in FY24 to NZ$527 million compared to the prior period. The company’s revenue soared 22% to NZ$1.7 billion for the year. Xero’s achievement of balancing revenue growth with profitability in FY24 is notable, particularly after years of struggling with the same.
Year-to-date, Xero’s shares have gained 20% in trading.
Xero offers cloud-based accounting software to small businesses. The company has 4.16 million subscribers across New Zealand, Australia, and the UK.
Insights from Xero’s FY24 Results
Xero’s performance was well supported by an 11% increase in subscribers to 4.16 million. The average revenue per user (ARPU) grew 14% to NZ$39.29.
Additionally, the company achieved a free cash flow of NZ$342 million, with a cash flow margin of 20% marking a significant increase from 7.3% in FY23.
As a result, Xero has now met the Rule of 40 criterion, which suggests that for a software company to be considered healthy, the sum of its revenue growth and free cash flow margin should be 40% or higher.
Analysts’ Reactions
Following the results, analysts from UBS, Citi, and Goldman Sachs confirmed their Buy ratings on Xero stock. Among these, Citi analyst Siraj Ahmed predicts an 18% upside in XRO shares.
Meanwhile, analyst Kane Hannan from Goldman Sachs is bullish on the stock, considering its strong financial performance and encouraging operational trends. Hannan also liked the company’s efficient cost management, which resulted in a favourable operating expenses to sales ratio of 73.3%.
What is the Price Prediction for Xero Shares?
As per the consensus among analysts on TipRanks, XRO stock has been assigned a Moderate Buy rating based on 10 recommendations, of which eight are Buy. The Xero share price target is AU$145.39, which is 7.5% above the current level.
