Xero Delivers Strong H1 Growth and Expands Innovation in Cloud Accounting

About Xero Limited

Xero Limited (ASX: XRO) is a global cloud-based accounting software company founded in New Zealand in 2006. Headquartered in Wellington, Xero serves over 4 million subscribers worldwide, primarily small to medium-sized businesses, accountants, and bookkeepers. The platform offers a wide range of tools for invoicing, payroll, bank reconciliation, financial reporting, and compliance, all accessible through an intuitive online interface. With operations across Australia, New Zealand, the UK, North America, and Asia, Xero has become a leader in the cloud accounting space. The company is known for its innovation-driven strategy, strong customer focus, and commitment to supporting small business growth through technology, automation, and strategic partnerships.

Financial Performance: Strong Growth Amidst Strategic Adjustments

In the first half of FY25, Xero reported a robust 25% year-over-year increase in revenue, reaching NZ$996 million. This growth was driven by solid performance across its three largest markets: Australia, New Zealand, and the United Kingdom.

The company’s adjusted EBITDA rose by 52% to NZ$312 million, reflecting improved operational efficiency. Net profit after tax increased by 76% to NZ$95 million, with diluted earnings per share climbing to NZ$0.62 from NZ$0.35 in the prior period.

Xero’s gross margin expanded to 89%, underscoring the stickiness of its product offerings. However, net subscriber additions were subdued due to a deliberate program initiated in H1 2024 to remove long-idle subscriptions. Excluding these removals, net additions grew by 6%, bringing the total subscriber base to 4.1 million.

The company’s free cash flow margin improved by 7.7 percentage points to 21%, and its cash balance increased by NZ$692 million, totaling approximately NZ$2 billion.

Strategic Initiatives: Enhancing Product Offerings and Market Reach

Xero has been actively expanding its product suite to better serve small businesses and accounting professionals. In April 2025, the company launched a new online bill payment functionality, providing users with greater flexibility and automation in managing payables.

The company also introduced the “Xero Simple” plan, a new Making Tax Digital (MTD) product tailored for sole traders and landlords in the UK. This plan aims to simplify tax compliance and will be available for small businesses to purchase directly from summer 2025.

In partnership with Sumday, Xero began offering free carbon accounting tools for 12 months to its subscribers, helping small businesses understand and manage their environmental impact.

Additionally, Xero rolled out enhancements to its invoicing system, retiring the classic invoicing feature in February 2025 and introducing a more streamlined version to improve user experience.

Market Positioning: Navigating Competitive Landscapes and Investor Sentiment

Xero’s strategic initiatives and strong financial performance have positively influenced investor sentiment. After experiencing a 23% drop from February’s highs into early April, Xero’s share price rallied 22% in the past five weeks, returning to positive year-to-date growth of 4.11%.

The company’s focus on delivering value to small businesses through continuous product innovation and strategic partnerships positions it well in the competitive cloud accounting software market. With a growing subscriber base and a commitment to enhancing user experience, Xero is poised for sustained growth in the coming years.