Xero's 48 percent revenue jump overshadowed by NZ$43.9m H1 loss

New Zealand's Xero has recorded a NZ$43.9 million loss on revenue of NZ$137 million for H1.
Written by Asha Barbaschow, Contributor

Cloud accounting firm Xero has released its financial results for the first half of FY17, posting a net loss after tax of NZ$43.9 million.

The New Zealand-based company experienced a 48 percent year-on-year increase in revenue to NZ$137 million; however, earnings before interest, taxation, depreciation, and amortisation (EBITDA) was down 23 percent over the same period last year, to come in at a loss of NZ$25.9 million.

Xero CEO and founder Rod Drury said his company remains focused on driving diversified global growth and executing on its business strategy.

"Our focus is to build a sustainable global business with high margins, while managing our cash. Our revenue growth has allowed us to continue the significant investment in our platform, back-office, and team to support our global footprint," Drury said.

"We are thrilled to deliver strong results while we build the long-term foundations for scale, including a complete re-platforming of the business."

Xero attributed its first half loss to its transition from Rackspace to Amazon Web Services (AWS), a two-year project that is expected to be completed in the second half of the financial year. Speaking with ZDNet in September, Drury said he was glad he made the decision to migrate to AWS.

"If you want to be on the lowest cost to serve and get the best margin, you have to be on one of these platforms," Drury explained. "More importantly, we cleaned up that trillion dollars worth of transactions so we can now start applying machine learning and artificial intelligence to all of that data to do some cool things."

"It's kind of neat for me because while it takes a long time to get that infrastructure and build all that piece, the fun you can have now by applying technologies to that scale is really exciting."

Drury told shareholders on Thursday that enabled by a comprehensive transition to AWS, Xero is well-positioned to capitalise on machine learning, which he believes will redefine accounting in future years.

"It is a huge achievement to get through this massive transition. We expect all business software vendors to re-platform over the next few years so they too may take advantage of the commoditised innovation services in the larger public cloud platforms," he said.

"With the right tools, capital, and financial services, we have the potential to materially improve productivity of small businesses globally -- which make up 55 percent of the global economy, and are the largest job generators and contributors to GDP."

Xero made a string of new platform integration announcements recently at Xerocon South, which included a partnership with Macquarie Bank's DEFT payments system and integrated EFTPOS provider Tyro that will see the cloud accounting firm integrate with electronic bill payment system BPAY.

In August, Xero also added a PayPal Express Checkout option to its software, allowing for an invoice created via Xero to be paid through PayPal directly from the invoice. The extension of the PayPal partnership also allows Xero users to be able to track the status of outstanding invoices and receive real-time status updates when those invoices are paid.

Xero is the only cloud accounting firm to offer 100 percent daily bank feeds, and within the next nine months, Xero expects to add another 40-plus financial institutions to its feed list. Having just opened an office in Singapore, one of the new feeds to join Xero will be local bank UOB.

Xero and Commonwealth Bank are also expanding their relationship to include direct feeds for business and corporate credit cards for businesses to track discretionary spending and reconcile transactions as they come in.

"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," Drury said.

The CEO also reminded shareholders on Thursday that the adoption of cloud software is in its early stages in most markets and said he believes Xero has significant opportunities ahead.

Xero is focusing on its subscription base for the half, seeing its total paying subscribers shoot past 862,000 -- a 45 percent increase over last year.

Drury expects this number to exceed 1 million by March 2017.

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