The amazing growth story of Xero in one simple chart

Xero Australia boss Chris Ridd. Image: Supplied.

At first glance the latest results for Xero, the New Zealand company disrupting the global accountancy software business, are not good.

The company doubled its losses in the year ended March to $NZ69.5 million.

And investors in Australia punished the company on the ASX, chopping 10% of its value off in one day to close Friday around $20 a share.

But the headlines don’t show the amazing growth in revenue and customers. And the magic of those numbers is that most of it is reccurring revenue, sales which are locked in through subscriptions.

“We’re not worried about short-term share market movements,” Chris Ridd, managing director of Xero Australia, told Business Insider.

“Xero has been a volatile share. You only have to look at recent history to see that.”

The other numbers from Xero’s annual results (in NZ dollars):

  • Subscription revenue of $120.9 million, up 81% from $66.9 million
  • Operating revenue of $123.9 million, up 77% compared.
  • Annualised committed monthly revenue (ACMR) of $159.3 million, a 71% increase
  • Paying customers increased to 475,000, an increase of 191,000 or 67%
  • Xero added 403 employees and now has 1,161 staff.

Looked at over time, this chart shows the how the company has been building its subscription revenue (NOTE: ACMR is annualised committed monthly revenue):

“It’s always hard to predict what the market is going to do,” Ridd says. “The fact that the business is growing so strongly is what we’re focusing on.”

He says Australia and New Zealand aren’t used to the idea yet of software as a service.

“If you go over to San Francisco they are on every corner,” he says. “So there’s a good understanding on what it takes to be successful.”

The way accounting works is that money spent to gain revenue must be recognised in the year it’s spent. That doesn’t take into account that customers gained now provide revenue for years to come.

“What you end up with is this incredibly valuable business because every customer is continuing to pay,” Ridd says.

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