Xero narrows first half loss as revenue rises

Xero narrowed its first-half loss for 2016 as revenue lifted 48%, with its cash burn continuing to slow.

The shares [NZX:XRO] gained slightly, up 7c at $16.97 at 11.30am this morning.

The company says its net loss was $43.9 million in the six months ended September 30, from a loss of $44.3 million a year earlier.

Operating revenue rose to $137.2 million from $92.9 million, with operating and investing cash outflows down 7.5% to $45.8 million.

Xero has $137.9 million cash and short-term deposits on hand and is well positioned to manage its cash usage to breakeven, the company says.

It reported an earnings before interest, taxation, amortisation and depreciation loss of $25.9 million from $33.8 million a year earlier, with its ebitda loss margin down to 19% from 36%.

The company expects to have one million customers this year, and has set a target of achieving $1 billion in annual revenue.

It had 862,000 customers as at September 30, with annualised monthly committed revenue of $303.2 million, despite the stronger kiwi dollar negatively impacting that figure by $29.9 million.

Xero says its financial performance was impacted by the costs of transitioning from Rackspace to Amazon Web Services, while a recent executive structure overhaul will support it to reach its $1 billion goal.

The management restructure sees country managers reporting to chief executive Rod Drury, the disestablishment of Andy Lark's chief marketing and revenue officer position and the creation of a chief marketing officer role to focus on brand and marketing.

Mr Drury says the company is well-positioned to capitalise on machine learning, and it expects all business software vendors to re-platform over the next few years to take advantage of the services available on larger cloud platforms.

"The network effect of strategic partnerships with top banks, financial institutions and global technology companies, combined with Xero's product and platform, has created an opportunity to pull away from the competition and leverage the significant white space in the global small business market," Mr Drury says.

The company has hired former Capital One executive Keri Gohman to run its American business from Denver "where future US operational investments will be focused, supporting Xero's hubs in San Francisco, New York, Austin and Seattle" when she starts in December.

In the year since September 30, 2015, Xero saw 64% growth in North American subscribers to 77,000, while its subscribers in Australia and New Zealand rose 39% to 592,000. In the UK, subscriber numbers rose 61% to 164,000.

The shares lasted traded at $16.90, and have dropped 9.9% this year.

(BusinessDesk)