One group of shares that are popular with investors are blue chips.

Blue chip shares tend to be companies that are well-known, long-established, and have strong financial positions. In other words, they are not going anywhere any time soon, which makes them safer than the average share.

Though, it is worth remembering that not all blue chip ASX shares are equal and some are better than others.

Two blue chips that are on form in FY 2021 are listed below. Here’s what you need to know about them:

Goodman Group (ASX: GMG)

Goodman Group is an integrated commercial and industrial property group. It has been growing at a strong rate in recent years thanks to management’s focus on high-quality properties in key locations that it believes will deliver sustainable returns for investors. These include logistics and warehouse facilities which have exposure to the growing ecommerce market through relationships with Amazon, DHL, and Walmart.

At the end of the first quarter of FY 2021, the company reported 2.9% like-for-like net property income growth across its managed partnerships. It also revealed 97.8% occupancy across its partnerships and $7.3 billion of development work in progress. The latter was ahead of its guidance.

This update went down well with analysts at Morgan Stanley. They have retained their overweight rating and $20.90 price target on the company’s shares. It notes that Goodman is expecting more developments over the remainder of FY 2021, with higher yields.

Sonic Healthcare Limited (ASX: SHL)

Sonic Healthcare is a blue chip share in form. It recently released its first quarter update and revealed very strong revenue and earnings growth. For the three months ended 30 September, the company delivered a 29% increase in revenue to $2,144 million and a massive 71% lift in EBITDA to $580 million. The majority of this strong growth was driven by increasing demand for COVID-19 testing services globally. Though, it is worth noting that the rest of the business performed positively as well.

This was another update that went down well with Morgan Stanley. In response to the update, it retained its overweight rating and lifted its price target to $40.00. The broker believes that its earnings from COVID-19 testing could remain stronger for longer. It suspects this could lead to a sustained re-rating of its shares.

More reading

• Leading brokers name 3 ASX shares to sell today
• Is the Goodman Group (ASX: GMG) share price the best REIT of 2020?
• Goodman (ASX:GMG) share price trading higher after quarterly results
• Why Flight Centre, Goodman, Inghams, & Scentre shares are charging higher
• With interest rates near zero these ASX income shares are in focus

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Sonic Healthcare Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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The Aristocrat Leisure Limited (ASX: ALL) share price will be on watch next week when the gaming technology company releases its full year results on Wednesday.

Ahead of the release, I thought I would take a look to see what the market was expecting from Aristocrat Leisure in FY 2020.

What is the market expecting?

Aristocrat Leisure is widely expected to report a sharp decline in revenue and profits in FY 2020 due to the impact of COVID-19.

According to a note out of Goldman Sachs, its analysts are forecasting revenue of $3.94 billion and net profit after tax before amortisation of $471 million. This represents a 10% and 47% decline, respectively, over the prior corresponding period.

What about its different segments?

The broker expects the company’s Digital business to have performed exceptionally well in FY 2020. It is forecasting a 27% increase in revenue to $2,273 million.

Goldman commented: “SensorTower continues to point to a solid 2H20E performance across the digital front, and to this end we forecast digital revenue growth of 27% on pcp in 2H/FY20E. We also highlight recent solid trends reported across the Sep quarter by peers such as ZYNGA. Through the half, we note that digital revenues (in USD) were up 36% on pcp on a 6mo rolling basis, driven by Product Madness up 45% and Plarium up 41%.”

The key drag on its performance is expected to be its Land based business. Goldman Sachs is forecasting a 36% decline in revenue to $1,667 million due to COVID-19 casino closures and social distancing initiatives.

While this is disappointing, the broker believes Aristocrat Leisure is well-placed to win market share post-pandemic.

The broker explained: ”While land based revenues will clearly be heavily impacted in 2H20E given the pandemic, we remain of the view that ALL is well-placed to take further share noting its solid balance sheet and recent industry surveys suggesting that it holds 2/3 of the top 5 performing cabinets across key categories.”

What else should you be watching?

The broker revealed that it remains bullish on its Digital business and will be looking out for commentary on the performance of its RAID game and its outlook into FY 2021.

It is also looking for comments around the growth trajectory of its new game, EverMerge. It notes that this has been the second most downloaded game in October.

Goldman will also be focused on the company’s expectations around outright sales and product development into FY 2021 and the shape of land based recovery.

Outlook.

Goldman Sachs isn’t expecting management to provide any real guidance for FY 2021, but there are a few points it is hoping will be clarified.

The broker concluded: “While we believe management will unlikely be able to provide any quantified FY21E group guidance given the fluid nature of the COVID-19 impacts, we will be particularly interested in i) commentary around the speed at which land based revenues can recover in N/A, ii) cost and D&D outlook noting that recently management reiterated their focus on continuing to invest in D&D over the medium term, and iii) any incremental snippets around M&A and desire to step into iGaming.”

Goldman Sachs has a buy rating and $34.00 price target on the company’s shares.

More reading

• Why the Aristocrat (ASX:ALL) share price could jump next week
• 2 ASX 50 shares to buy today
• How you could have turned $20,000 into $250,000 in 10 years with ASX shares
• 3 quality ASX growth shares to buy in November
• The 10 ASX stocks worst hit by a Biden US presidential election win

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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The 3P Learning Ltd (ASX: 3PL) share price is rocketing today, up 13.28% at the time of writing to $1.36 a share. 3PL shares closed at $1.20 yesterday, but opened at $1.38 this morning and climbed as high as $1.42, before trending lower to the current share price over the day.

But today’s moves are just another good piece of news for 3P Learning shareholders. The share price was already up 42% year to date before today’s jump and is now up 60% year to date, and up more than 100% since the lows, we saw in March. However, it’s worth noting that 3P only hit the ASX boards back in 2014, and, as of today’s share price, remains more than 40% below the company’s IPO price.

So what is this learning company? And why has the 3P share price rocketed more than 12% today?

What is 3P Learning?

3P Learning describes itself as a “global leader in online education”. The company offers a suite of learning resources “designed for schools and families”, which cover spelling, literacy and numeracy. 3P Learning was founded back in 2005 and boasts some high-profile partners, including Microsoft Corporation (NASDAQ: MSFT), the British Educational Suppliers Association and Unicef.

The company offers a range of software programs that aim to assist students with reading, writing, spelling and mathematics. These include the flagship Mathletics program, as well as Readiwriter, Reading Eggs and WordFlyers.

The company is a truly global player. In its earnings report for the 2020 financial year, the company advised that it received 51% of its revenue from the Asia Pacific region, with 20% hailing from the Americas and 29% from Europe, the Middle East and Africa. In the same financial year, the company derived 69% of its revenue from ‘mathematics’ programs, and 31% from literacy programs.

Why are 3P shares rocketing today?

The company made an announcement to the markets this morning before open. This news was the ‘receipt of a non-binding’ acquisition proposal for 3P, launched by a private Indian tech company called Think and Learn Private Ltd (which apparently operates under the name BYJU). Think and Learn Private operates in a similar sphere to 3P Learning and “provides programs in the K-12 segment”.

The proposal is for Think and Learn Private to acquire 100% of 3P Learning’s shares for a price of $1.45 a share, to be paid in cash.

The board has yet to review or recommend the proposal to shareholders and notes that the proposal, “is subject to a number of conditions, including completion of satisfactory confirmatory due diligence within a 4-week period, a unanimous recommendation from the 3PL Board and entry into a scheme implementation agreement”. Think and Learn Private will also have to obtain approval from the Foreign Investment and Review Board.

This isn’t the first time 3P Learning has had a suitor at its door. Back in August, the company received another takeover bid, this time from private US company IXL Learning. That bid involved a $1.35 per share offer, (which has now been approved by the Foreign Investment and Review Board) which the board subsequently recommended, “in the absence of a superior proposal”.

It seems 3P Learning shareholders now have just that. 

More reading

• What to expect from the Aristocrat Leisure (ASX:ALL) FY 2020 results
• Costa (ASX:CGC) share price lower despite appointing new CEO
• Temple & Webster (ASX:TPW) share price can double in 3 years, says fundie
• Here’s why the ANZ (ASX:ANZ) share price is up 5% this week
• Fund manager says Treasury Wine (ASX:TWE) share price is too cheap

Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Microsoft and recommends the following options: long January 2021 $85 calls on Microsoft and short January 2021 $115 calls on Microsoft. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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The Costa Group Holdings Ltd (ASX: CGC) share price is dropping lower today despite a big announcement.

In afternoon trade the horticulture company’s shares are down almost 1% to $3.90.

What did Costa announce?

This afternoon Costa announced that it has found its new Chief Executive Officer.

According to the release, the company has promoted its current Chief Operating Officer, Sean Hallahan, to the role of Chief Executive Officer and Managing Director with effect from 31 March 2021.

Prior to joining Costa, Mr Hallahan was Managing Director of Tata Global Beverages – ANZ and Indonesia for 7 years. He has also held a number of senior sales and marketing roles with major companies including George Weston Foods, Simplot, and SC Johnson.

Rigorous global search.

Costa’s Chairman, Neil Chatfield, commented: “Sean’s appointment is the culmination of a rigorous global executive recruitment search which included both internal and external candidates, following the notification by current CEO Harry Debney of his intention to retire from a full-time executive role.”

“Sean has been Costa’s Chief Operating Officer since October 2017 and we are delighted to have a person of Sean’s calibre and experience who brings a deep passion for our industry as well as over 20 years senior management and CEO experience in FMCG, including a background with growth oriented organisations with an emphasis on delivering high quality product categories with strong customer focus,” he added.

The company notes that it has a proud history of growing and marketing industry leading products with a focus on investing in sustainable commercial farming and innovation to support growth in superior genetics-based product categories.

The Costa board believes that Sean Hallahan is ideally placed to build on this, continue the solid performance of the business, and develop exciting growth opportunities for the company into the future.

More reading

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• 2 high yield ASX dividend shares for income investors to buy today
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended COSTA GRP FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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Online furniture retailer Temple & Webster Group Ltd (ASX: TPW) shares can double over the next 3 years, according to Regal Funds Management’s Todd Guyot.

The fund manager shared this opinion at the Sohn Hearts and Minds virtual investment conference hosted today. At the time of writing, the Temple & Webster share price has slipped in afternoon trade, dipping 0.8% to $10.02.

What did the fund manager say

Mr Guyot told the conference COVID-19 had accelerated Temple & Webster’s revenue growth this year by more than 74%. Strong growth also continued in the months after lockdown restrictions were lifted, with 160% sales increase in August, followed by a 100% increase in September. He said this demonstrated “the impact of repeat customers, which is a direct correlation with the customer experience”.

Mr Guyot said he believed the online retailer had now reached scale, evidenced by the fact that earnings generated in the first quarter of 2021 were higher than all of 2020, a trend which he believes will continue.

In addition, the company had an “attractive” negative working capital – a cashflow model where it received customer payments upfront, and suppliers were paid at a later date. As sales increase, this model generates a lot of cash up front, and the more cash it’s able to generate, the faster its sales can grow – giving it a snowball effect. 

Mr Guyot compared Temple & Webster’s growth profile to that of US online home retailer Wayfair (NYSE: W), where the market has consistently underpriced its growth potential. He says this underpricing might be happening to Temple & Webster as well.

In conclusion, he advised investors to ignore short term periods of market volatility.  The Temple & Webster share price “we think can double over the next three years”, Mr Guyot said.

Quick take on Temple & Webster

Temple & Webster was first floated on the ASX in 2016, and at the time was widely regarded as the worst float of 2016. In that first year of public trading, the company suffered bottom-line losses of $44 million. It also lost $14.8 million in earnings before interest, tax, depreciation and amortisation (EBITDA). This number was almost twice the $8.5 million loss forecast in its December 2015 prospectus.

Fast forward to 2019, the company was doing much better – reporting its first full year profit of $1.1 million. That result proved to be a drop in the ocean compared to its first quarter FY21 profit of $8.6 million– a figure which is 7 times the 2019 result, and more than what the company made for all of fiscal 2020.

The Temple & Webster share price vs its competitors in 2020

The Temple & Webster share price, like many e-commerce shares, has rocketed in 2020. At today’s trading, the Temple & Webster’s share price has shot up up by 280% on a year-to-date basis. In comparison to other e-commerce players, the Kogan.com Ltd (ASX: KGN) share price is up 160% this year, and Redbubble Ltd (ASX: RBL) is up by 310% in 2020.

More reading

• The 5 best-performing ASX 200 shares so far this year
• Is the Adore Beauty (ASX:ABY) share price in the buy zone?
• Why Coles, HUB24, Mesoblast, & Temple & Webster shares are pushing higher
• Why Redbubble, Kogan, Marley Spoon and 1 other ASX share are surging
• Temple & Webster (ASX:TPW) share price barnstorms back with 11% rise

Eddy Sunarto has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Kogan.com ltd and Temple & Webster Group Ltd. The Motley Fool Australia has recommended Kogan.com ltd and Temple & Webster Group Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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The Australia and New Zealand Banking GrpLtd (ASX: ANZ) share price has been a strong performer this week.

Despite experiencing a couple of days of declines, the banking giant’s shares are up 5% for the week.

Why is the ANZ share price charging higher this week?

There have been a couple of catalysts for the positive performance by the ANZ share price this week.

The first is of course Monday’s news that a potential COVID-19 vaccine has performed exceptionally well in phase three trials.

The early data from Pfizer’s vaccine showed that it was 90% effective against COVID-19, which was better than even the most optimistic experts were hoping for.

This news caused an almighty rotation from large investors, who dumped COVID-winners like tech stocks and snapped up beaten down COVID-losers such as travel and bank shares.

Given how far the ANZ share price has fallen during the pandemic, it wasn’t at all surprising to see investors piling in on the news.

What else is driving it higher?

Also giving the bank’s shares a boost was a better than expected set of results from the big four over the last couple of weeks.

For example, for the 12 months ended 30 September, ANZ reported a 42% decline in cash profit from continuing operations to $3.76 billion. While this was a sizeable decline, some analysts were expecting an even greater decline.

It is also worth noting that ANZ’s profit decline was driven primarily by full year credit impairment charges of $2.74 billion, which increased almost $2 billion year on year. This was due largely to the impact of COVID-19 and a first half impairment of Asian associates of $815 million, also related to the pandemic.

One broker that was particularly pleased with the result was Credit Suisse. It put an outperform rating and $26.20 price target on ANZ’s shares in response to it.

Based on the current ANZ share price, this price target implies potential upside of over 26%.

The broker believes the tail risk relating to COVID-19 bad debts is diminishing and notes that its deferred loan repayments are better than feared. It also likes the bank for its robust capital position and the prospect of a strong recovery in its earnings over the coming years.

In light of this, the 5% gain by the ANZ share price could only be the beginning as far as this broker is concerned.

More reading

• Vaccine hopes cause ASX 200 to rise on Tuesday
• Afterpay (ASX:APT) share price up 4% in today’s trading
• Why the ANZ (ASX:ANZ) share price is underperforming on Monday
• ASX 200 jumps 1.7%: REA Group surges to record high, bank shares push higher
• ASX 200 Weekly Wrap: US election special

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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The embattled Treasury Wine Estates Ltd (ASX: TWE) share price is finding support among some experts as one fund manager called it far too cheap.

The comment came from Tribeca Investment Partners lead portfolio manager Jun Bei Liu, reported the Australian Financial Review.

Shares in the alcoholic beverages group came under pressure recently when China launched an anti-dumping investigation on Aussie wines.

TWE share price supported by asset value

China has been targeting a range of Australian imports into that country as diplomatic relations between the two nations worsened.

But the stock appears cheap given the strong demand for premium wine in China, said Liu at the 2020 Sohn Hearts & Minds Conference.

She explained that the TWE share price valuation can be fully supported by its inventory and property assets.

Too much bad news in the TWE share price

This means even if the Chinese market is totally cut off to the group, the stock shouldn’t need to fall any further.

“We estimate Treasury has $4 billion of premium label wine sitting in the basement and that’s 70 per cent of its market value at the moment,” the AFR quoted her as saying.

“The rest consists pretty much of its premium farmland out of Napa Valley and South Australia.”

Positive outlook for Treasury Wines

A shift in consumer taste also bodes well for the Treasury Wine share price. While Chinese market demand was once dominated by beers and spirits, millennials favour wines and this group accounts for 30% of China’s population.

It is predicted that China will spend US$430 billion ($595 billion) on alcoholic beverages over the next 10 years, with wine the main driver of consumption.

Against this positive backdrop, Liu think the TWE share price should be trading ahead of its tangible asset base.

This broker likes the TWE share price too

She isn’t the first to highlight this abnormally. As I reported last week, Citigroup upgraded the TWE share price to “buy” from “neutral”.

The broker thinks that the Chinese dumping investigation is focusing on lower priced wine when Treasury Wines is more exposed to the premium end of the market.

Even if China finds Australian importers guilty, Treasury Wine should largely escape any punitive action that the Chinese authorities is expected to impose.

In any case, Citi believes that the loss of the Chinese market is already reflected in the TWE share price.

More reading

• ASX gold stocks could rebound as experts tip high highs for gold in 2021
• ASX 200 down 0.35%: Ramsay Q1 update, NEXTDC’s international expansion, gold miners surge
• 5 things to watch on the ASX 200 on Friday
• The ASX 200 fell 0.5% on Thursday
• After 8 months, ASX 200 shares are finally out of correction territory

Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Treasury Wine Estates Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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The Cellnet Group Limited (ASX: CLT) share price is surging higher today following the release of a strong trading update.

At one point, shares in the lifestyle technology distributor were up at 13 cents, representing a massive gain of 202%. However, investors quickly sold off their holdings for a profit, sending the Cellnet share price back to 7.8 cents, up 81%.

As a matter of perspective, the All Ordinaires Index (ASX: XAO) is down 0.36% to 6,595.4 points.

What does Cellnet do?

Cellnet sources products and distributes popular brands of lifestyle tech products to retail and businesses in Australia and New Zealand. The company specialises in mobile phones, tablets and notebooks, and hybrid accessories.

Cellnet is also involved in services to the mobile telecommunications and retail industries.

What were the drivers of Cellnet’s results?

In the month of October, Cellnet reported robust trading conditions. Revenue increased to $12.6 million, up 18% year-on-year. This was underpinned by the surge in sales of iPhone accessories, following Apple’s announcement of four new flagship iPhone 12 models.

Net profit before tax came to $1.05 million, which was up $1.02 million over the corresponding period. Year-to-date net profit before tax is standing at $1.6 million thus far, which equates to over a 400% gain from this time last year.

Gaming was flagged as a continued performer, with PlayStation 5 and Xbox bringing new consoles to market. Cellnet revealed it is seeing positive earnings in October as a result.

In addition, recent brand acquisitions and cost management control have been significant contributors to the company’s financial performance.

What did management say?

Commenting on the achievement, Cellnet chief executive, Mr Dave Clark, said:

Our October result is a real testament to the dedication and hard work that the team has put in to make this iPhone launch our most successful yet. Our revenue and profit for October surpassed all expectations, delivering one of the best monthly results Cellnet has ever produced.

Cellnet is well placed as we move into the high velocity Christmas trading period.

About the Cellnet share price

The Cellnet share price was mostly stagnant from May onwards, unable to break the 5-cent barrier. However, today’s trading update has witnessed the company’s shares reach highs not seen since April.

The Cellnet share price hit a 52-week high of 9.6 cents per share on 22 January 2020.

More reading

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Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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Australia’s top brokers have been busy adjusting their estimates and recommendations again, leading to the release of a large number of broker notes this week.

Three broker buy ratings that have caught my eye are summarised below. Here’s why brokers think these ASX shares are in the buy zone:

Breville Group Ltd (ASX: BRG)

According to a note out of Morgan Stanley, its analysts have retained their overweight rating and $29.00 price target on this appliance manufacturer’s shares. This follows the release of its annual general meeting update which included guidance for FY 2021. Breville expects earnings before interest and tax (EBIT) of $128 million to $132 million. Morgan Stanley believes this guidance could prove to be conservative. The Breville share price is trading at $26.03 this afternoon.

InvoCare Limited (ASX: IVC)

A note out of Morgans reveals that its analysts have retained their add rating and increased their price target on this funerals company’s shares to $13.00. The broker made the move after InvoCare announced the acquisition of Family Pet Care and Pets in Peace for a combined price of $49.8 million. Morgans expects the acquisitions to be accretive to earnings in FY 2021. Outside this, it feels the recent easing of COVID restrictions will be a boost to its core business. The InvoCare share price is changing hands for $11.56 today.

Telstra Corporation Ltd (ASX: TLS)

Analysts at UBS have retained their buy rating and $3.70 price target on this telco giant’s shares. This follows an announcement by the company which revealed plans to split into three separate entities. The broker believes this plan will crystallise value for shareholders. In addition to this, the broker sees 5G internet as a major opportunity for Telstra and expects the company to pay a 16 cents per share dividend in FY 2021. The Telstra share price is trading at $3.12 on Friday afternoon.

More reading

• Why this broker is calling Telstra (ASX:TLS) shares a buy today
• These blue chip ASX dividend shares offer 5%+ yields
• The ASX 200 fell 0.5% on Thursday
• Why InvoCare, Nine, Telstra, & Wesfarmers shares are storming higher
• ASX 200 down 0.1%: Xero hits record high, Telstra and Wesfarmers updates impress

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool Australia has recommended InvoCare Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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This week, cloud accounting platform Xero Limited (ASX: XRO) announced a rocketing earnings result for the six months to 30 September 2020. You can read the highlights here.

The big headline numbers showed continued growth in subscribers and revenue, as well as a huge lift in net profit, which jumped from NZ$1.3m to NZ$34.5m. Given the Xero share price jumped by as much as 6% on the day, the results were better than many had anticipated for a period throttled by COVID-19.

However, digging into the results, there are three big things that you may have missed.

1. Xero is piling up a lot of cash!

During the period, Xero’s free cash flow jumped from NZ$5.3 million to NZ$54.3 million. That is a big increase and the additional cash means that Xero now has NZ$572 million of cash and short term equivalents.

What could Xero do with that cash? Well, pop your dreams of a juicy dividend aside for now. Over the last few years Xero has made several careful acquisitions to expand the company’s platform and make it even more attractive to users. This includes the purchase of lending platform Waddle for $80 million, as well as the US$70 million acquisition of invoice and receipt capture software Hubdoc.

As Xero is still very much in growth mode, there is a good chance the company will continue to look for acquisitions that continue to add to the company’s platform.

2. COVID-19 caused the cost of acquiring new customers to spike

Although Xero was able to trim sales and marketing costs by 10% compared to the same period last year, the drag of COVID-19 on international subscriber growth meant that Xero’s Customer Acquisition Cost (CAC) jumped noticeably.

International CAC months, the number of months it takes for revenue from a new subscriber to cover the cost of acquiring them, jumped from 16 months at September 30 2019, to 22 months in 2020. Xero says the increase was largely due to the lower growth rate of new subscribers, so the average cost of acquiring each new user internationally increased 30%!

3. Xero still has a huge opportunity ahead

Although it was disappointing to see CAC rise, Xero reminded shareholders of just how big the opportunity ahead is. CEO Steve Vamos noted that Xero estimates that only half of small businesses in Australia and New Zealand have adopted cloud accounting, while for the rest of the world that number is only at 20%. This reiterates just how big the opportunity for cloud accounting, and Xero, remains.

More reading

• Why Orocobre, Ramsay, Webjet, & Xero shares are dropping lower
• The ASX 200 fell 0.5% on Thursday
• Why are ASX tech shares all over the place today?
• ASX 200 down 0.1%: Xero hits record high, Telstra and Wesfarmers updates impress
• Xero (ASX:XRO) share price hits record high after delivering strong first half growth

Regan Pearson owns shares of Xero. You can follow him on Twitter @Regan_Invests.

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Xero. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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