Xero has announced its H1 2020 results and they are impressive. In its most mature markets it is still seeing growth. Growth is exceptional in the UK and while growth in the US is muted, it seems to be putting in plans to compete more effectively against QuickBooks. In addition Xero celebrated having more than 2 million users.
Importantly it is now in a cash flow positive state, with free cash flow at $6.5 million. Revenues increased by 36% to NZ $553 million. Annualised recurring revenue is now at NZ$638 million an increase of 32% year over year. It is also running as a gross margin percentage of 85.2% up 2.4 percentage points over the year.
CEO Steve Vamos commented: “We’ve continued to perform well this half with strong topline results and improving financial performance. Exceeding two million subscribers globally and achieving AMRR of over three quarters of a billion dollars were important milestones. There are a number of significant global trends contributing to Xero’s growth including industry, regulatory and technology shifts. These include the increased use of cloud technology by small businesses, the digitisation of tax and compliance systems, and innovation reshaping the financial services sector.”
Enterprise Times: What does this mean
Xero has continued its strong growth and is now at the point where in can consider further investment. That investment may take the form of acquisitions, its last being that of Instafile in November 2018. However, it may also look to open up new markets internationally.
It competes effectively with Sage in the UK. It has tougher competition in the US with QuickBooks that has invested heavily in its product. Should it invest in more territories? International expansion is expensive.
It may look to extend its functionality and compete with companies such as Acumatica, now owned by EQT that is also growing quickly in the cloud ERP market. Alternatively, could Xero be an acquisition target for someone? When it has a proven international product ready to launch, it might be an opportune time for a company with a multinational presence to acquire it.