BUY HOLD SELL – Xero (ASX: XRO)
Xero fell 10.9% on the back of its interim results. It is a $9.72bn company. It is the 50th biggest ASX listed company.
Key Points
Half year net loss of NZ$16.1m.
No dividend. None was expected.
CEO retires after five years, new CEO appointed.
Operating revenue increased 30%.
EBITDA increased 11%.
Net Loss after tax 172% increase.
H2 expected to be similar to last year.
Momentum in subscriber additions in the UK and US to improve over remainder of financial year.
Brokers cutting target prices this morning.
Share price lowest since the pandemic.
Overview
Xero released their 1H FY23 results yesterday. Operational revenue increased 30% to $NZ658.5m, yet net loss increased 172% to NZ$16.13m. Xero’s Waddle business caused an increase in non-cash impairments and disposals, forcing net losses higher. Despite the loss EBITDA increased 11% YoY, with subscribers increasing 16% in the same period.
XRO also announced that the current CEO Steve Vamos will be replaced by Sukhinder Singh Cassidy, a long time and a previous president of Google, Pacific and Latin America.
Broker views
.png)
More Broker views later.
Early broker comments are not too bad. Revenue was in line or above what was expected, it was the EBITDA line that was disappointing. Xero continues to reinvest in the company, in marketing and R&D, an investment designed to pay off in the future. Xero says
“Total operating expenses (including acquisition integration costs) as a percentage of operating revenue for FY23 are expected to be towards the lower end of a range 80-85%.” and the company is
“Positioned for the long-term opportunity across our international segments”.
Marcus Today contains stock market education, commentary and actionable ideas.
The Numbers
.png)
This is a company that does not stack up on fundamentals, on earnings, and is unlikely to for some years. No dividends. But it is a growth stock. Look at the revenue line above. 28% growth this year. 21% next. Like Afterpay, it does not make sense to value investors. But it is building a World class software infrastructure that is very very sticky, and every dollar spent on R&D, and every dollar spent marketing to a growing customer base, expands their “Moat” and establishes them for the long term.
The departing CEO passes an uncomfortable message, hence the share price fall yesterday. But this is a juggernaut that will not be locked off the rails by a personality change at the top. The numbers weren’t so bad. The good news is that whoever ends up being appointed as the CEO proper, could be a catalyst for the decision to focus on profitability rather than spending.
.png)
Chart and View
This is not rocket science.
No technical analyst would buy XRO until it bottoms, until its back in uptrend. The only interesting part of that is this overnight rally in Technology stocks (NASDAQ up 7% last night). Have a look at the correlation of XERO with the All Tech index. XRO has such a large market cap it basically
is the All Tech Index. Money will return to technology stocks and the All Tech index today on the back of this US inflation number. This could cause the bottom in XRO.
.png)
Conclusion
To read the conclusion and to get access to more market commentary,
sign up for a free trial now and become a better investor.
More about the author – Marcus Padley
Marcus Padley is a highly-recognised stockbroker and business media personality. He founded
Marcus Today Stock Market Newsletter in 1998. The business has built a community of like-minded investors who want to survive and thrive in the stock market. We achieve that through a combination of daily stock market education, ideas and activities.
