Xero Limited

Profit Booking: New Zealand domiciled public software company, Xero Limited (ASX: XRO) in its H1 FY19 (April-September) reported increase in its revenue by 37% to $256.5 Mn and annualized monthly recurring revenue (AMRR) by 40% to come in at $589 Mn as compared to previous period. The reason behind such growth is an increase in subscriber base by 193,000 during the half year to 1.579 Mn along with the rise in ARPU (Average Revenue per User) by 6% PCP to $31.1 as on September 30, 2019. Also, its lifetime value (LTV) per subscriber increased by 6% on PCP to come in at $2,494.

Its EBITDA increased by ~7.7% to $16.8 Mn, however, its net loss increased by 46% to 28.56 Mn for H1 FY19 as compared to the previous corresponding period. The major reason being from impairments and additional costs relating to the strategic alliance with Gusto (US payroll provider) and the acquisition of Hubdoc (leading data capture solution). Its EBITDA margin was reported at 14.1% in 1HFY19 which is less than an industry median of 30.6%. However, the company expects to continue its focus on growing its global small business platform.It aims to break-even within its cash balance following strong cash-inflow expectations in the forthcoming year without drawing on its debt facility or the net proceeds from convertible notes issued at subsequent periods.
 

1H FY19 P&L statement (Source: Company Reports)

Meanwhile, the stock was up by 50.88 per cent in the past one year and by 30.73 per cent in the past three months as at March 08, 2019. The stock prices slipped by 0.775 per cent on 08 March 2019 owing to some volatility and profit booking. The stock experienced a short interest of 0.41 per cent (as per the report on 4 March 2019). Given the stock price action in the past few days and mixed updates, we recommend a “Sell” rating on the stock at the current market price of $48.63and we advise to investors that they should book the profit at the current price point and wait for further correction to get the better entry levels.
 

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