Xero Delivers Strong FY26 Result as Revenue Rises, US Momentum Accelerates and AI Strategy Builds

About Xero Ltd

Xero Ltd (ASX: XRO) is a global small business platform that brings together accounting, payroll, payments and other business tools in one platform. The company helps small businesses, accountants and bookkeepers automate routine tasks, access timely insights and connect with data, apps and advisors. Xero operates across Australia, New Zealand, the United Kingdom, the United States and other international markets.

Revenue growth remained strong

Xero’s headline performance showed a business continuing to scale at pace. Operating revenue increased 31 per cent to NZ$2.753 billion, or 28 per cent in constant currency. On an organic basis, excluding Melio, revenue growth was 21 per cent, or 19 per cent in constant currency.

The result was driven by both customer growth and stronger monetisation. Xero added 506,000 customers during FY26, taking total customers to 4.92 million. This was almost double the 254,000 net additions reported in FY25, although the prior year was affected by the removal of long idle subscriptions. Excluding that impact, net customer additions increased 22 per cent.

Average revenue per customer rose 23 per cent to NZ$55.44. Xero said the increase reflected price changes, product mix, platform attach, payments growth and Melio’s contribution. Melio added NZ$4.24 to group ARPC and contributed around 40 per cent of the ARPC uplift. This shows Xero is increasingly benefiting from a broader platform model rather than relying only on core accounting subscriptions.

ANZ remained a strong base

Australia and New Zealand continued to provide a large and profitable foundation for the group. ANZ revenue increased 18 per cent to NZ$1.392 billion, or 17 per cent in constant currency. Customers rose 7 per cent to 2.75 million, with 186,000 net additions. ARPC increased 17 per cent to NZ$48.89.

Australia remained the larger contributor, with revenue of NZ$1.148 billion, up 20 per cent, and customers increasing 9 per cent to 2.10 million. New Zealand revenue increased 10 per cent to NZ$244 million, while customers rose 3 per cent to 650,000.

The result highlights Xero’s continued strength in its home region, although customer growth is naturally slower in more mature markets. The company is now focused on deeper product usage, ARPC optimisation and new offerings for more complex small and medium-sized businesses.

International momentum accelerated

International markets were a major growth driver. International revenue increased 47 per cent to NZ$1.361 billion on a headline basis, or 25 per cent organically. Customers rose 17 per cent to 2.17 million.

The United States was the standout market. Revenue increased 240 per cent on a headline basis, reflecting the Melio acquisition, and 30 per cent organically. Xero described the US as its fastest-growing market, supported by strong direct contribution, partner channel focus and new selling opportunities from a multi-product offering.

The UK also delivered strong growth, with revenue up 26 per cent to NZ$727 million and customers up 14 per cent to 1.32 million. Xero said the UK benefited from high growth and some early Making Tax Digital tailwinds in the second half. Rest of world revenue increased 21 per cent to NZ$303 million, with customers up 12 per cent to 426,000.

Profitability improved despite investment

Adjusted EBITDA increased 18 per cent to NZ$757.4 million, showing Xero continued to grow earnings while absorbing the Melio investment. Free cash flow rose 9 per cent to NZ$554.0 million, and the Rule of 40 improved to 48.5 per cent. On a pro-forma basis, including the full-period impact of Melio, the Rule of 40 outcome was 36.0 per cent.

Gross profit increased 23 per cent to NZ$2.309 billion, although gross margin fell to 83.9 per cent from 89.0 per cent. The decline reflected Melio’s payments revenue model, which has a lower gross margin profile than Xero’s subscription revenue. Organic gross margin remained high at 89 per cent.

Operating expenses remained disciplined. Excluding Melio-related transaction costs, operating expenses represented 70.5 per cent of operating revenue, in line with guidance. Xero also reported revenue per employee growth of 21 per cent, helped by disciplined headcount management and emerging efficiencies from AI tools.

AI and payments are becoming more central

Xero is increasingly positioning itself as a small business financial operating system for the AI era. During FY26, the company scaled Just Ask Xero, or JAX, globally in beta, with more than 500,000 customers adopting new GenAI-specific features launched in the past 18 months. Xero also partnered with Anthropic to integrate Claude’s AI into Xero, alongside its existing OpenAI partnership.

Payments also became a more important part of the business. Xero launched bill payments powered by Melio and said global payments revenue increased strongly. The Melio acquisition allows Xero to connect accounting and payments more closely, particularly in the US market.

Capital position supports flexibility

Xero ended FY26 with NZ$1.934 billion in cash and short-term deposits and a net debt position of NZ$383.4 million. The board authorised the purchase of up to A$550 million of shares to offset dilution associated with share-based compensation for FY27 allocations and historical grants. Xero said the outlay would not affect ongoing investment initiatives.

Outlook

Xero expects FY27 operating revenue of NZ$3.620 billion to NZ$3.730 billion and adjusted EBITDA of NZ$860 million to NZ$920 million. This includes incremental US brand spend of up to around NZ$55 million and a higher-than-historical weighting of adjusted EBITDA to the second half.

Overall, Xero delivered a strong FY26 result, with revenue growth, customer additions, ARPC expansion, cash generation and US momentum all moving in the right direction. The main positives are the strength of the core platform, the Melio-led payments opportunity, AI adoption and international growth. The main risks are execution in the US, lower-margin payments mix, competition and the need to convert AI investment into customer value and earnings growth.