Key Highlights

  • Xero reported FY26 operating revenue of NZ$2,753.1 million, up 31%, with 4.92 million customers.
  • Net profit after tax was NZ$167.4 million, down 27%, and operating income fell 13% following Melio-related costs.
  • FY27 guidance is operating revenue of NZ$3,620 million to NZ$3,730 million and adjusted EBITDA of NZ$860 million to NZ$920 million.

Xero Ltd (ASX:XRO) shares were priced at $59.75 during the trading session on 19 October 2026, down 3.30%. Xero provides cloud-based accounting and small business financial software, with its three largest markets being Australia, the UK and the US. On 14 May 2026, the company released its full-year results for the year ended 31 March 2026 (FY26), including financial metrics, market updates, AI product activity, a share purchase program and FY27 guidance. The price data relates only to the 19 October 2026 session and is separate from the release date.

FY26 financial results

Figures in the release are in New Zealand dollars. Operating revenue was NZ$2,753.1 million, up 31% (28% in constant currency). Customers rose 11% to 4.92 million, with net additions of 506,000. Average revenue per customer was NZ$55.44, up 23%, and annualised monthly recurring revenue was NZ$3,273.1 million, up 37%.

EBITDA was NZ$789.5 million, up 24%, and adjusted EBITDA was NZ$757.4 million, up 18%. Net profit after tax was NZ$167.4 million, down 27%, and operating income was NZ$316.1 million, down 13%, which the company attributed to Melio-related acquisition costs. Free cash flow was NZ$554.0 million, up 9%, and gross margin was 83.9%, compared with 89.0% in FY25. Average monthly churn was 1.14%.

Market performance and Melio

Revenue in Australia and New Zealand rose 18% to NZ$1.4 billion, with 2.8 million customers. International revenue rose 47% to NZ$1.4 billion, or 25% on an organic basis excluding Melio, with 2.2 million customers. US core revenue increased 240%, or 30% organic excluding Melio, and the UK recorded revenue growth of 26% with customers up 14%.

Xero completed the acquisition of Melio, a US small business bill payment platform, ahead of schedule, and launched bill payments in March 2026. The release notes that the Rule of 40 measure was 48.5% in FY26 and 36.0% on a pro-forma basis that reflects a full period of Melio.

AI products and share purchase program

Xero reported that customer adoption of new generative AI features launched in the previous 18 months reached 500,000 users, and that its Just Ask Xero assistant had reconciled more than 40 million bank transactions with a reported accuracy of 97%. The company announced an agreement with Anthropic to integrate Claude into Xero, alongside its existing partnership with OpenAI.

Xero also announced XeroForce, a natural language builder for custom AI agents, which is currently in invite-only alpha, and a new Ultra plan for medium-sized businesses that is in beta in Australia. The Board authorised the purchase of shares up to A$550 million in FY27 to offset dilution from share-based compensation, using an on-market structure involving a member of the Xero Group.

Customer value and regional pricing metrics

The release reports that total lifetime value of customers rose 17% to NZ$21.0 billion on a Xero-only basis, excluding Melio, and that average revenue per customer in Australia and New Zealand was NZ$48.89, up 17%. In International markets, average revenue per customer was NZ$63.74, up 28%. Annualised monthly recurring revenue grew 25% on an organic basis, or 20% in constant currency, compared with the reported rise of 37%.

Sector backdrop

Cloud accounting and small business software providers compete on subscriber growth, revenue per customer and the integration of payments and AI features. Regulatory changes, such as Making Tax Digital in the UK mentioned in the release, can influence demand in individual markets. Companies reporting in New Zealand dollars while listed on the ASX can also show currency effects when results are compared with Australian-dollar peers, and Xero presents both reported and constant currency growth for that reason.

Risks shareholders should weigh

The press release and the wider operating environment point to several considerations that shareholders may wish to weigh:

  • Net profit after tax and operating income both declined in FY26 because of Melio-related costs, and gross margin fell 5.1 percentage points.
  • The company expects below Rule of 40 outcomes on a pro-forma basis before FY28, and FY27 adjusted EBITDA is weighted to the second half.
  • FY27 guidance includes incremental US brand spend of up to about NZ$55 million.
  • Product items such as XeroForce and Ultra are early-stage, being in alpha and beta respectively.
  • The FY28 aspirations, including more than doubling FY25 group revenue, are described as aspirations rather than guidance, and depend on integrating Melio and achieving anticipated revenue synergies of about US$70 million.

What's next

The company outlined FY27 operating revenue of NZ$3,620 million to NZ$3,730 million, adjusted EBITDA of NZ$860 million to NZ$920 million, product capitalisation rates of 40% to 45% and depreciation and amortisation of about NZ$465 million. Ultra was planned for general availability in Australia in late June, with other markets to follow. The company said it would notify shareholders in writing about the share purchase structure following the announcement.