NEW ZEALAND BUSINESS NEWS
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Xero, the accounting software company used by small businesses to keep their books, run payroll, and invoice customers, reported a 46 per cent revenue lift for the six months to September. Revenue reached $1.745 billion, against $1.194 billion a year earlier. Net profit, however, fell 86 per cent to $18.5 million from $134.8 million.
The gap between the two lines comes from Melio, a United States payments business Xero bought. Xero owned Melio for the whole of the latest half and for none of the comparable period a year earlier. Melio is still losing money as it grows, so carrying it in full has dragged operating income and net profit down even as sales climb.
The company is listed in Australia but based in Wellington, and it sells its software largely to small and medium businesses and their accountants.
Adjusted EBITDA, a measure of underlying earnings that strips out some costs, rose 3 per cent to $361.6 million from $350.9 million. On a pro-forma basis, which includes Melio in the earlier period, that measure rose 23 per cent. The pro-forma figure is the fairer comparison of the underlying business; the headline figure is distorted by the timing of the purchase.
Customer numbers grew by 226,000 in the half to 5.15 million, from 4.59 million a year earlier. Average revenue per customer rose 25 per cent to $62.21, meaning Xero is earning more from each account while adding new ones.
The company also lifted its “rule of 40” score to 54.9 per cent from 44.5 per cent. That benchmark adds revenue growth to free cash flow margin, and software businesses are generally considered healthy when the combined figure is at least 40 per cent. A rising score means Xero is growing and converting that growth into cash at the same time.
Xero will buy back up to A$1 billion of its own shares on the market over the next 12 months. The company said the current share price does not fully reflect its long-term value and growth prospects.
Full-year revenue guidance has been lifted to between $3.77 billion and $3.83 billion, from an earlier forecast of $3.62 billion to $3.73 billion. The upgrade reflects stronger-than-expected Melio payments performance and the benefit of a weaker New Zealand dollar. Adjusted EBITDA guidance has narrowed to $880 million to $920 million, from $860 million to $920 million.
For the 2028 financial year, Xero sees the potential for revenue above $4.6 billion, before counting any revenue it expects Melio to bring in alongside its existing products.
Melio’s loss is expected to narrow. Xero expects the business to break even at the adjusted EBITDA line, measured on an annualised run rate, during the second half of the 2028 financial year. Until then, owning it will keep weighing on reported profit even as it adds to revenue.
That timing matters for anyone reading Xero’s accounts over the next two years. A falling net profit line will not necessarily signal a weakening core business; it will partly reflect a deliberate decision to absorb losses at a payments business the company is still building.
For the small businesses and accounting practices that use Xero, the results point to a company putting weight behind payments. Melio handles bill payments between businesses, and folding it into the software aims to keep more of a customer’s money movement inside Xero’s systems rather than in separate banking tools.
Rising revenue per customer shows Xero is selling more to existing accounts, whether through extra products or price changes. Businesses reviewing their software costs should expect the per-customer figure to keep climbing.
The share buyback and the raised forecast both point to a company with cash to spend and confidence in its pipeline. The A$1 billion buyback will run over the next 12 months.
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