Highlights

  • Xero lifted FY26 Operating Revenue 31% to NZ$2.753 billion, including a partial-year contribution from Melio.
  • Adjusted EBITDA increased 18% to NZ$757.4 million while net profit after tax fell 27%.
  • The group ended FY26 with 4.92 million customers and higher average revenue per customer.
  • FY27 guidance assumes further growth as Xero invests heavily in the United States and integrates Melio.

Xero Limited (ASX:XRO) spent years building a subscription accounting engine. The Melio Acquisition is turning it into something broader—and more complicated. FY26 delivered a bigger customer base, stronger cash generation and faster revenue growth, but reported profit fell as acquisition costs and integration spending arrived. The next test is whether payments can deepen Xero’s US position without diluting the Economics that made its software model attractive.

Melio Changed the Shape of FY26

Xero completed its US$2.5 billion acquisition of payments platform Melio in October 2025, meaning FY26 included only part of a year of contribution. Operating revenue still climbed 31% to NZ$2.753 billion, or 21% organically excluding Melio. Adjusted EBITDA rose 18% to NZ$757.4 million, while net profit after tax fell 27% to NZ$167.4 million as acquisition-related costs weighed on the statutory result.

Customers and Revenue per User Both Increased

Xero finished the year with 4.92 million customers after adding 506,000. Average revenue per customer rose 23% to NZ$55.44, including a contribution from Melio. Monthly churn increased to 1.14%, although Xero reported a lower underlying cohorted measure. The United States was the fastest-growing region, reinforcing why management is willing to spend heavily on Brand Investment and product expansion there.

Payments Add Opportunity and Margin Complexity

Melio gives Xero transaction-based payments revenue alongside its traditional recurring software subscriptions. Management is targeting US$70 million of revenue synergies and US$20 million of cost savings by FY28, with Melio expected to reach adjusted EBITDA breakeven on a run-rate basis in the second half of that year. The opportunity is meaningful, but payments carry different margins, competitive dynamics and regulatory risks from accounting software.

AI Is Both a Product Strategy and a Threat

Xero is pushing artificial intelligence deeper into its platform through Just Ask Xero and other automation tools. The company says its verified financial data can make AI more useful for small-business workflows, while automated bank reconciliation is already handling large transaction volumes. Yet the same technology lowers barriers for new software entrants and gives established rivals new ways to bundle bookkeeping, payments and advice. Monetisation will matter more than user counts alone.

FY27 Raises the Stakes in the United States

Xero guides to FY27 operating revenue of NZ$3.62 billion to NZ$3.73 billion and adjusted EBITDA of NZ$860 million to NZ$920 million, while planning additional US brand investment. Investors should watch Melio integration, customer growth, churn, gross margin, AI adoption and Buybacks designed to offset Equity dilution. The strategic logic is clear: combine accounting, payments and AI into a broader small-business platform. The financial proof will come from whether that combination produces durable growth without sacrificing margins.

The Competitive Moat Is Being Tested

Xero still benefits from Accountant and bookkeeper relationships, a large app ecosystem and recurring subscription revenue, but its competitive field is widening. Intuit remains deeply established in the United States, while payments specialists, banks and AI-led start-ups are attacking adjacent workflows. Melio is intended to make Xero more useful across the full cash-flow cycle rather than only accounting, which could improve customer value and retention. The trade-off is greater operational complexity. If Xero can combine accounting data, payments and automation smoothly, the platform becomes harder to replace; poor integration would hand rivals an opening.