Xero increases dominance of cloud accounting with 37 per cent growth
Advertisement

Xero increases dominance of cloud accounting with 37 per cent growth

Xero's dominance in cloud-based accounting software continues, with the company booking a 37 per cent increase in half-yearly revenue up to $257 million.

The cloud accounting platform's subscriber numbers increased by 193,000 during the half year, taking its total number of subscribers to 1.579 million globally, Xero said in a statement to the ASX on Thursday. However, the growth came at a cost: The company's half-yearly net loss widened to $28.6 million from $19.6 million in the prior year.

Steve Vamos was appointed chief executive of Xero earlier this year.

Steve Vamos was appointed chief executive of Xero earlier this year. Credit:Ryan Stuart

Xero's shares traded 1.1 per cent higher at $43.45 shortly before 1pm in Sydney.

Xero is used by many small businesses and its results are being closely watched in light of the takeover bid for competitor MYOB.

Advertisement

Move to code free accounting

Newly appointed chief executive Steve Vamos said the results were "really pleasing".

He said Xero's acquisition earlier this year of startup Hubdoc was part of a key element in Xero's 'code free accounting' strategy using intelligent software to automate the process. The net loss included impairment costs from that $95 million acquisition.

"Xero's half-year results demonstrate strong top and bottom line results with significant improvements in cash flow margins and average revenue per user," Mr Vamos said.

Loading

Mr Vamos said there was still room for significant growth for Xero with cloud accounting penetration sitting at 20 per cent worldwide, and 40 per cent in Australia.

Xero has 981,000 subscribers in Australia and is growing quickly in the United Kingdom, where it increased subscribers by 40 per cent to 355,000. Its growth has been slower in North America, where it has 178,000 subscribers but Vamos said it was "relatively early days" in that market.

"The interesting thing about our business is it requires a real commitment to building those partnerships with bookkeepers and accountants," he said. "It takes time for our business model to develop."

Xero was founded by Rod Drury who stepped down as chief executive in April.

Xero was founded by Rod Drury who stepped down as chief executive in April. Credit:Photo: PJ Warren

MYOB in play

While Xero holds the dominant market position in cloud accounting, rival MYOB is recording strong growth with more than 186,000 new subscriptions to its platform in the 12 months to June 2018 in Australia.

Loading

MYOB chief financial officer Richard Moore said the business was on track to add more than 200,000 subscriptions during 2018 as it opens its books to a $2.2 billion takeover bid by private equity firm KKR.

“Our June result showed 61 per cent year-on-year growth in Australia and New Zealand, while Xero grew at 24 per cent," Mr Moore said. "Our confidence in grabbing the market leadership position for new online subscriptions by the end of this year is testament to the value we have been delivering to our clients and underscores the success of our current strategy.”

Mr Vamos declined to comment on the takeover bid for MYOB and said Xero would focus on its own strategy.

"The most important thing for us is to look at the progress we are making," he said. "The truth is we are a global business and we are focused on the things we need to do not only in Australia and New Zealand, but to expand Xero around the world."

Follow MySmallBusiness on Twitter, Facebook and LinkedIn.