The Xero Limited (ASX: XRO) share price could represent a top investment opportunity at the moment.
For readers that aren’t aware, Xero is a cloud accounting software business that aims to provide beautiful accounting to users.
There are many different users in the ecosystem including business owners, accountants, bookkeepers, advisors and employees.
It aims to make things easy to understand, simple to use, efficient and increasingly automated.
This offer is resonating with customers and that’s one of the first reasons why the Xero share price could be a smart idea:
Subscriber growth
Xero has come a long way over the last decade. Its cloud-only software has won over millions of subscribers. In the FY22 half-half-year result, Xero revealed its total subscribers had reached 3 million, up 23% year on year.
It now has a very strong position in New Zealand and Australia. But the company is growing quickly in several other countries too like the UK, South Africa and Singapore.
The company recently made an acquisition (called TaxCycle) in Canada that has quickly ramped up its presence in the country, which has a materially bigger population than Australia.
Strong metrics
One of the factors that may be helping the Xero share price is a number of its strong metrics.
It has a very high gross profit margin (over 87% and rising), which allows the business to re-invest a high proportion of its new revenue into more growth investing. Management is indeed prioritising spending growth over generating a big net profit at this stage.
The average revenue per user (ARPU) increased by 5% to $31.32 in HY22. Churn also remains very low.
The above factors helped the annualised monthly recurring revenue (AMRR) increase by 29% to $1.13 billion in HY22. Xero’s lifetime value of subscribers increased 61% to $9.94 billion.
Growing ecosystem
Xero wants to be the leading global platform for smaller and medium businesses around the world.
For a long time, the company has provided a very powerful accounting and business management system for business owners and accountants. But it has also allowed external software developers to provide support and technology for businesses with extra analysis, unique inventory management tools and so on. There are lots of different options.
Xero has also been acquiring businesses to expand its offering. Recent acquisitions include: Planday, Tickstar and Waddle.
Xero share price target
Morgan Stanley rates the business as a buy, with a price target of $137. That’s approximately 40% higher than where it is today.
The post Here’s why the Xero (ASX:XRO) share price is a top buy right now: expert appeared first on The Motley Fool Australia.
Should you invest $1,000 in Xero right now?
Before you consider Xero, you’ll want to hear this.
Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now… and Xero wasn’t one of them.
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More reading
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns and has recommended Xero. The Motley Fool Australia owns and has recommended Xero. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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