Xero share price sinks 10% to 52-week low following FY22 results miss

A young male investor wearing a white business shirt screams in frustration with his hands grasping his hair after his ASX investment portfolio fell today

A young male investor wearing a white business shirt screams in frustration with his hands grasping his hair after his ASX investment portfolio fell today

The Xero Limited (ASX: XRO) share price is tumbling on Thursday morning.

At the time of writing, the cloud accounting platform provider’s shares are down 10% to a new 52-week low of $78.25.

Why is the Xero share price sinking today?

Investors have been selling down the Xero share price on Thursday for a couple of reasons.

The first is significant weakness in the tech sector following another selloff on the Nasdaq index overnight. This has led to the S&P/ASX All Technology Index falling a sizeable 5.1% this morning.

The other catalyst for the weakness in the Xero share price has been a negative reaction to the company’s full-year results.

What did Xero report?

For the 12 months ended 31 March, Xero reported a 29% increase in revenue to NZ$1.1 billion and a 28% jump in annualised monthly recurring revenue (AMRR) to NZ$1.2 billion.

This was underpinned by a 19% increase in total subscribers to 3.3 million thanks to growth in all markets. However, this subs growth wasn’t quite as strong as some were expecting, which could explain some of the weakness in the Xero share price today.

It was a similar story for its earnings, which fell short of expectations due to weaker operating margins.

The company reported an 11% lift in earnings before interest, tax, depreciation and amortisation (EBITDA) to NZ$212.7 million and a net loss of NZ$9.1 million.

What was the response?

Goldman Sachs has responded to Xero’s full-year results and described it as “solid”, though acknowledges that the company missed on revenue, earnings, and subscribers.

It commented:

XRO reported FY22 Sales/EBITDA/NPAT +29%/+11%/-NZ$37mn vs. pcp to NZ$1,097mn/NZ$213mn/-NZ$9mn, which was -1%/-2%/-NZ$13mn vs. GSe. Cash conversion was strong (GOCF +8% to NZ$236mn, = 111% of EBITDA), with XRO net cash decreasing to NZ$51mn (vs. NZ$257mn at FY21).

2H22 Sub growth was marginally softer vs. expectations (+258k vs. GSe +298k), with this weakness across all geographies (i.e. ANZ -10k, vs. GSe, International -30k). This is despite a solid churn profile in 2H22, with ANZ churn declining again. We note the UK business had subdued 3Q net adds, with 4Q improving.

Is the Xero share price in the buy zone?

Goldman Sachs currently has a buy rating and $133.00 price target on the company’s shares. This implies major upside potential for the Xero share price.

However, it is worth remembering that this recommendation and price target could change in the coming days once the broker has updated its financial model.

The post Xero share price sinks 10% to 52-week low following FY22 results miss appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Xero. The Motley Fool Australia has positions in and has recommended Xero. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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