Xero Limited (Xero, ASX: XRO), based in Wellington, New Zealand, is a global cloud-based accounting platform for small businesses and their advisors. Listed on the Australian Securities Exchange, Xero provides integrated accounting, payroll, and payment solutions, serving 4.41 million subscribers across Australia, New Zealand, the UK, the US, and other markets.
Revenue Growth Signals Strong Demand
Xero announced on May 15, 2025, that FY25 operating revenue rose 23% to $2.1 billion, or 20% in constant currency. A 15% increase in average revenue per user (ARPU) to $45.08 and a 6% rise in subscribers to 4.41 million drove this growth. Despite removing 160,000 idle subscriptions, Xero added 414,000 underlying subscribers, showcasing its ability to attract customers globally.
Profitability Highlights Cost Discipline
Adjusted EBITDA grew 22% to $640.6 million, with a 30.5% margin. Xero’s operating expense ratio improved to 71.8%, down 1.5 percentage points from FY24. Net profit after tax rose 30% to $227.8 million, supported by an 89% gross margin. These results, reported on May 15, 2025, reflect Xero’s focus on operational efficiency and sustainable profitability.
Cash Flow Enhances Strategic Flexibility
Free cash flow surged 48% to $506.7 million in FY25, with the margin improving to 24.1% from 20% in FY24. Announced on May 15, 2025, this growth strengthens Xero’s ability to invest in innovation. The Rule of 40 metric reached 44.3%, up from 41%, highlighting Xero’s balanced approach to growth and cash flow generation.
Product Advances Strengthen Market Position
Xero’s “Win the 3×3” strategy advanced in FY25, focusing on accounting, payroll, and payments. Xero Simple launched in the UK for Making Tax Digital compliance, and US customers gained over 700 bank feeds. The Syft Analytics acquisition enhanced reporting, while Just Ask Xero (JAX), a GenAI tool, entered global beta for business edition customers. These efforts target a $100 billion market opportunity.
Regional Performance Reflects Global Strength
Australia and New Zealand generated $1.18 billion in revenue, up 21%, while international markets grew 24% to $925.6 million. International ARPU rose 21% to $49.82, driven by product and pricing enhancements. A 1.03% churn rate (excluding idle subscription removals) underscores strong retention. These results, announced on May 15, 2025, highlight Xero’s global resilience.
FY26 Outlook Supports Long-Term Goals
Xero projects operating expenses at 71.5% of revenue in FY26, with higher H1 costs due to remuneration and investments. The company aims to double its business while sustaining Rule of 40 performance. With a subscriber lifetime value of $17.9 billion, up 16%, Xero is well-positioned for growth in cloud accounting.
Xero’s Continued SaaS Success
Xero’s FY25 results, released on May 15, 2025, showcase its financial strength and strategic focus. With robust revenue, profitability, and cash flow growth, Xero remains a leader in delivering cloud-based solutions for small businesses.