Financial powerhouse: Why I think these stats make Xero shares irresistible

Xero Limited (ASX: XRO) shares have performed strongly over the long term. In fact, in the past five years, the Xero share price has seen a 250% rise.

However, it has dropped 43% since the start of 2022. Still, I think there are a number of financial statistics that show why this drop in the Xero share price could be an attractive buying opportunity for the long term.

For readers who haven’t heard of Xero before, it’s an ASX tech share that provides accounting software for business owners, financial advisers, bookkeepers, and accountants.

Strong Xero financial stats

The company’s FY22 result, reported in May 2022, showed a number of impressive metrics.

For me, one of the key figures is the gross profit margin of 87.3% (which was up from 86% in FY21). Such a high margin means that a large majority of new revenue can turn into gross profit, which can then be used to spend on further growth initiatives like marketing or software development.

With revenue growing quickly, it also means the scale and gross profit of the business are growing strongly. FY22 operating revenue went up 29% to NZ$1.1 billion.

Not only is the number of subscribers increasing around the world – with a 19% rise in FY22 to 3.27 million – but the average revenue per user (ARPU) is increasing as well. FY22 ARPU went up 7% to NZ$31.36. Price increases in key markets can help Xero’s organic growth.

The total lifetime value of subscribers continues to increase. In FY22, it soared 43% to NZ$10.9 billion. This is being helped in a number of ways including new subscribers, higher ARPU, and increasing customer loyalty. The average customer lifetime is now 9.3 years. There is seemingly a lot of future revenue already signed up.

I think the extremely low churn rate is one of the best measures of the quality of Xero shares and also the quality software offering for its subscribers. In the second half of FY20, churn was just 1.13% of subscribers, which dropped to 1.01% in the second half of FY21 and 0.9% in the second half of FY22.

Management confident about the future

Xero says that it’s going to continue to reinvest its cash flow generated to drive long-term shareholder value.

The Xero CEO Steve Vamos said:

The value Xero brings to our small business customers and the trust they place in us is illustrated by this result. Our strong revenue and subscriber growth gives us confidence to continue to invest for growth consistent with our long-term strategy.

Our performance reflects the quality of our customer and partner relationships as more people realise the benefits that cloud accounting and digital tools provide.

We are committed to delivering the world’s most insightful and trusted small business platform by focusing on driving cloud accounting adoption, growing the small business platform and building for global scale and innovation. We continue to prioritise investment in building products and growing partnerships by investing cash generated to help deliver our strategy, drive long-term growth and meet customer needs.

Xero share price snapshot

Over the last month, Xero shares have fallen 14%.

The post Financial powerhouse: Why I think these stats make Xero shares irresistible appeared first on The Motley Fool Australia.

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More reading

• ASX 200 tech shares are getting hammered on Monday. Here’s why
• Up 20% in 2 months, is the Xero share price a buy today?
• Here’s what Goldman Sachs thinks of the Xero share price
• 5 things to watch on the ASX 200 on Friday
• Why Blackmores, Codan, Lake Resources, and Xero shares are falling today

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. 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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