Fund Manager Summary
The fund managers believe that Xero Ltd presents a strong long-term investment opportunity due to its impressive growth trajectory. They note that the company has demonstrated a significant increase in free cash flow (FCF), rising from ~$12m in FY22 to ~$121m in FY23, with projections of ~$226m for FY24, indicating a CAGR of 28% through FY27. In their opinion, Xero's strategic focus on its '3x3 Strategy' across core markets—Australia, the UK, and the USA—along with the introduction of adjacent revenue streams, positions it well for profitable growth. Additionally, the enhancements in leadership and the adoption of GenAI technology for operational efficiencies are viewed positively. The fund managers are optimistic about Xero's ability to maintain a strong operational efficiency ratio, guiding for 75% of operating revenue in FY24.
Source: Trading View
Commentary From The Managers
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Pendal Group
31 Oct 2025
$145.00
Summary
- Pendal Group acknowledges concerns regarding the impact of AI on the software sector.
- However, Pendal Group views AI as a significant opportunity for Xero Ltd (XRO).
- XRO is advanced in developing AI functionalities.
- The company's advantage stems from its strong distribution network and proprietary data.
- This data is essential for creating AI products that meet local accounting and tax compliance needs.
- Such capabilities are challenging to replicate without extensive sector knowledge.
- There remains uncertainty regarding the Melio acquisition in the US.
- Despite this, Pendal Group sees potential benefits from the acquisition.
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Commentary From The Managers
Pendal Group
31 Oct 2025
$145.00
- Pendal Group acknowledges concerns regarding the impact of AI on the software sector.
- However, Pendal Group views AI as a significant opportunity for Xero Ltd (XRO).
- XRO is advanced in developing AI functionalities.
- The company's advantage stems from its strong distribution network and proprietary data.
- This data is essential for creating AI products that meet local accounting and tax compliance needs.
- Such capabilities are challenging to replicate without extensive sector knowledge.
- There remains uncertainty regarding the Melio acquisition in the US.
- Despite this, Pendal Group sees potential benefits from the acquisition.
Summary
Yarra Capital Management
30 Sept 2025
$157.50
- Xero (XRO) is currently rated as overweight by Yarra Capital Management.
- The company experienced modest underperformance recently due to limited company-specific news.
- Concerns regarding the acquisition of US bill payment platform Melio are impacting the stock.
- Yarra Capital Management believes that these market concerns are not proportional to the acquisition's materiality to Xero's overall business.
- The firm maintains confidence in Xero's strong long-term growth profile, irrespective of the pace of success in the US market.
Summary
1851 Capital
15 Sept 2025
$161.24
- Xero Ltd is an accounting software provider listed on the ASX since 2012.
- Originally listed in New Zealand in 2007 with a $15 million IPO.
- Current market capitalization stands at $26 billion.
- Xero has achieved a 60% market share in Australia, surpassing traditional competitors like MYOB and Reckon.
- The company has successfully expanded its product offerings globally.
- 1851 Capital views Xero as one of the best innovators on the ASX.
- Continued confidence in Xero's growth trajectory and market position.
Summary
Yarra Capital Management
31 Aug 2025
$156.96
- Xero Limited (XRO) remains an overweight position for Yarra Capital Management.
- The company experienced modest underperformance during the month.
- There was limited company-specific news affecting the stock.
- The recent acquisition of Melio, a US bill payment platform, is impacting stock performance.
- Yarra Capital Management believes that market concerns regarding this acquisition are not proportional to its materiality to Xero's overall business.
- The long-term growth profile of Xero remains strong, regardless of the acquisition's success in the US.
Summary
Pendal Group
31 Aug 2025
$156.96
- Pendal Group notes that XRO softened following its capital raising and announcement of a US acquisition.
- There has been sticker-shock regarding the price, with expectations of low to mid-teens earnings dilution in FY27.
- The strategic rationale for the deal is viewed positively, as it enhances product market fit and customer value proposition in the US.
- There are significant scale opportunities from merging two complementary platforms.
- Pendal Group anticipates the earnings impact will be nearly breakeven in FY28, with accelerating accretion from FY29 onwards.
- Additionally, there is broader weakness in software stocks due to potential threats from AI.
Summary
QVG Capital
31 Aug 2025
$156.96
- XRO appeared in QVG Capital's key detractors list despite being an ‘out of cycle’ reporter.
- Investors are weighing pricing power and subscriber growth duration as key positives.
- Recent capital allocation decisions seem to align with strategy but not with budget.
- QVG Capital remains vigilant regarding potential capital management missteps.
- Concerns are raised about the strength of the board based on these decisions.
Summary
Milford Asset Management
8 July 2025
$178.40
- Xero Ltd was founded in New Zealand in 2006 and is now listed in Australia.
- Milford Asset Management views Xero as one of New Zealand’s most successful businesses, akin to the Phar Lap of our generation.
- Founder Rod Drury has generated significant shareholder value since the company’s IPO, with NZD$1 in 2007 yielding AUD$193 as of June 2025.
- Xero provides cloud-based accounting software primarily to SMEs, accountants, and book-keepers.
- The company is a market leader in New Zealand, Australia, and the UK, though it faces competition in the US from Intuit.
- The transition from traditional desktop products to cloud-based systems presents an industry tailwind for Xero.
- Milford has invested in Xero over the years, including supporting recent capital raises to fund growth.
- Xero’s heavy investment in technology has allowed it to maintain its market leadership.
- Strong customer loyalty results in low churn and a predictable revenue base, enabling further innovation.
- Under the new CEO, Sukhinder Singh Cassidy, Xero has improved its cost structure and productivity.
- The company is focusing on core markets (ANZ, UK, North America) and essential services (accounting, payments, payroll).
- Xero has made strategic partnerships and acquisitions to enhance its product offerings, including a recent acquisition of Melio.
- The company is now shifting focus towards improving sales and marketing performance, particularly in North America.
- While the US market presents a significant opportunity, it remains highly competitive with established players.
- Milford Asset Management believes Xero has a better chance of success in the US than historically, but significant investment is needed.
- Achieving a mid-teens market share in the US could deliver meaningful value for shareholders.
- Xero is seen as a strong business with a long runway for digital transformation in accounting.
- Milford remains positive on Xero but acknowledges the need to reassess market expectations and risks associated with recent acquisitions.
Summary
First Sentier Investors
30 June 2025
$179.80
- First Sentier Investors acknowledges the effective leadership of Xero CEO Sukhinder Singh-Cassidy in enhancing company efficiency and cultural change since her appointment.
- The focus has narrowed to three core products: accounting, payroll, and payments, alongside three key markets: Australia, the UK, and the US.
- Bajic highlights the US market as a significant opportunity for Xero, especially after years of underperformance.
- The recent acquisition of Melio, a high-growth US digital payments platform, is seen as a strategic move that enhances Xero's growth prospects in the US market.
- This acquisition is expected to triple the revenue base and provide a strong foundation for growth in the larger US digital payments sector.
- Integrating accounting with embedded payment functionality creates a unique value proposition, distinguishing Xero from standalone offerings in a competitive market.
Summary
Antares Capital
30 June 2025
$179.80
- Antares Capital initiated a position in Xero (XRO) due to its recent acquisition of Melio, a US SMB payments and software company.
- The acquisition addresses a core product capability gap for Xero.
- Antares Capital believes this move will accelerate Xero's growth in the US market.
- The fund manager participated in an institutional placement associated with the acquisition, securing a favorable entry price.
- Xero's return to the portfolio follows its acquisition of Melio, enhancing exposure to the US payments market.
- The investment also aims to mitigate Xero's scale weakness compared to Intuit in the US.
- Antares Capital views Melio as a strategic asset that will aid in customer acquisitions.
Summary
Maple-Brown Abbott
30 June 2025
$179.80
- Maple-Brown Abbott notes Xero Limited's recent acquisition of Melio Limited for US$2.5bn.
- The acquisition was made at approximately 13 times annualised revenue, despite Melio being loss-making and free cash flow negative.
- Xero raised equity of about A$2bn as part of the acquisition consideration.
- This transaction highlights a valuation conundrum for investors with traditional valuation approaches.
- In contrast to Xero, companies like Santos are being acquired at prices that may not seem compelling.
- Xero's valuation is influenced by the market's enthusiasm for Tech and their use of scrip for acquisitions.
- Maple-Brown Abbott continues to monitor the implications of these contrasting valuation metrics.
Summary
Pendal Group
30 June 2025
$179.80
- Pendal Group remains overweight Xero (XRO), reflecting confidence in the company's strategic direction.
- Xero announced the US$2.5bn acquisition of US company Melio, indicating a significant move in their growth strategy.
- The acquisition is funded by raising A$1.8bn, showcasing strong financial backing for the transaction.
- Pendal Group appreciates the deal's rationale, as it aligns with Xero's strategic goals.
- This acquisition is expected to enhance product market fit and customer value proposition.
- It presents significant scale opportunities by combining two complementary platforms.
- The deal addresses a critical need for US small-to-medium businesses in a growing market.
- While there is some concern about the acquisition price, it is projected to be low to mid-teens earnings dilutive in FY27.
- Expectations are for it to be almost breakeven in FY28, with growth in accretion from FY29 onwards.
Summary
Smallco Investment Manager
30 June 2025
$179.80
- Smallco Investment Manager continues to hold an optimistic view on Xero Ltd.
- Xero announced the acquisition of Melio, a US-based SMB bill pay platform, for up to $US3.0bn.
- This acquisition provides Xero with access to a fast-growing SMB payment solution.
- It allows Xero to internalise its own customer bill payment solution.
- Xero may leverage Melio’s Fiserv relationship to distribute an embedded accounting software/payments solution through Fiserv’s ~3,500 banking clients.
- While large acquisitions carry higher execution risk, they are viewed as complimentary and positive for the long-term growth of both businesses.
Summary
Endeavor Asset Management
30 June 2025
$179.80
- Xero (XRO) has agreed to acquire Melio, a US-based payables platform serving small businesses.
- The acquisition is valued at A$3.9 billion, funded through an A$1.85 billion equity raising.
- This deal supports Xero’s “3 × 3” framework by enhancing its presence in the US, UK, and Australia.
- The acquisition addresses a critical product gap and expands Xero’s reach among US customers.
- Despite the strategic advantages, the consideration is considered rich and may impact near-term earnings.
- Endeavor Asset Management continues to hold XRO as a core investment, but chose not to participate in the equity raising.
Summary
ELM Responsible Investments
30 June 2025
$179.80
- Xero is a global leader in cloud-based accounting software, focused on enhancing the lives of small businesses.
- Rapid growth as one of the fastest-growing SaaS companies, with millions of users in over 180 countries.
- Recent acquisition of Melio for US$2.5 billion, aimed at integrating accounting and bill payments.
- This acquisition will provide faster, easier, and more accurate financial management for small businesses.
- Enhanced features will improve cash flow control for Xero’s customers, particularly in the US market.
- The deal positions Xero to expand its presence in the United States and remain competitive in the accounting software sector.
Summary
Hyperion Asset Management
31 May 2025
$186.97
- Hyperion Asset Management notes Xero Ltd. achieved 20% revenue growth at constant currency, totaling NZ$2.1bn.
- Revenue growth was driven by subscriber growth and average revenue per subscriber.
- All key geographies, including Australia, United Kingdom, and United States, reported revenue growth of at least 20%.
- The new management team is focused on profitable growth, with a 48% increase in free cash flow.
- Xero reported a 44.3% score on the ‘Rule of 40’, combining revenue growth and free cash flow margin.
- The company is heavily investing in product development, with a 25% year-on-year increase in design and development costs.
- New releases were announced in key areas: Accounting, Payroll, and Payments.
- Xero introduced its Gen AI powered ‘business companion’, JAX (Just Ask Xero).
Summary
Yarra Capital Management
31 May 2025
$186.97
- Xero Ltd (XRO) is currently viewed as overweight by Yarra Capital Management.
- The company has outperformed recently, driven by a solid financial result.
- Xero continues to grow both user numbers and Average Revenue Per User (ARPU).
- The firm is on track to achieve 20% revenue growth for FY26.
- Management expresses optimism about the potential for reaccelerated growth in the US.
- The company now offers a full product suite in the US market.
Summary
ELM Responsible Investments
31 May 2025
$186.97
- Xero is a global leader in cloud-based accounting software, focused on enhancing the lives of small businesses.
- It has rapidly become one of the fastest-growing SaaS companies, with millions of subscribers in over 180 countries.
- In FY25, Xero reported a 23% increase in operating revenue, reaching NZ$2.1 billion, driven by subscriber growth and higher average revenue per user (ARPU).
- Net profit after tax increased by 30% to NZ$227.8 million, reflecting disciplined cost management.
- Xero added 254,000 net new subscribers, bringing the total to 4.41 million, with ARPU rising 15% to NZ$45.08.
- Product innovations include the expansion of "Just Ask Xero", a generative AI tool for invoice and quote creation.
- Introduction of Tap to Pay on iPhone allows for contactless payments directly through the Xero Accounting app.
- Xero launched ACH debit payments via Stripe for U.S. customers, facilitating faster and cheaper invoice payments.
Summary
Blackwattle Investment Partners
31 Mar 2025
$154.75
- XRO was the largest negative contributor to performance during the month.
- XRO fell 9% in March as ASX Technology stocks sold off following leads from the US.
- XRO had been a solid performer in 2025, with strong expectations for further earnings improvement.
- US TAM expansion is expected to be announced at the FY25 result in mid-May.
- We continue to see strong upside for XRO as they progress towards being the market-leading global accounting software for SMEs.
- Strong financial metrics are anticipated, driven by the new management team.
- We expect CEO Sukhinder Singh-Cassidy and her team to drive profitable sales growth and invest for market share expansion.
- XRO is viewed as one of the highest quality companies on the ASX with a significant long-term, compounding growth profile.
Summary
Yarra Capital Management
31 Dec 2024
$168.56
- Xero Ltd recently outperformed market expectations, indicating strong performance.
- Reported a 25% increase in operating revenue for the half-year.
- Achieved a remarkable 76% jump in net profit.
- Noted a 15% boost in average revenue per user.
- Impressive results attributed to disciplined cost management and enhanced free cash flow margins.
- Xero has refined its product offerings and go-to-market strategy in the U.S.
- The company is well-positioned for future growth.
- Yarra Capital Management continues to hold its position in Xero due to these positive indicators.
Summary
ELM Responsible Investments
31 Dec 2024
$168.56
- Xero is a global leader in cloud-based accounting software, focused on enhancing the lives of small businesses and their communities.
- Founded in 2006 in New Zealand, Xero has rapidly grown to become one of the fastest-growing SaaS companies, with millions of subscribers in over 180 countries.
- In the first half of FY2025, Xero reported a 25% year-over-year revenue growth to $996 million, driven by 10% subscriber growth and 11% ARPU expansion.
- The adjusted EBITDA increased by 52% to $312 million, showcasing Xero’s disciplined capital allocation and strategic execution.
- Regional highlights include 27% revenue growth in Australia and 13% in New Zealand, with international markets like the U.K. and U.S. also contributing significantly.
- Xero's focus on simplifying subscription plans and implementing pricing changes has further bolstered ARPU growth.
- Xero's growth reflects a broader digital transformation in the SME sector, empowering small businesses with efficient financial management tools.
- The company’s expansion in international markets signals a global shift toward digital financial solutions, enhancing financial literacy and management practices.
- With a robust financial position and a growing global footprint, ELM Responsible Investments continues to hold Xero, believing it is well-equipped to capitalize on the digitization of small business accounting.
- Overall, Xero is positioned to provide long-term value to investors.
Summary
Lakehouse Capital
30 Nov 2024
$174.55
- Xero has delivered a solid half year result.
- Operating revenue growth of 25%, driven by subscriber growth and pricing strategies.
- Unit economics remain healthy, with monthly churn steady at 1%.
- Average revenue per user (ARPU) increased by 11% year-on-year.
- International business momentum is progressing well, with new partnerships enhancing the Xero ecosystem.
- Management's execution of a profitable growth strategy is encouraging, despite shifts to higher-cost markets like the US.
- Excitement for future opportunities in accounting, payments, and payroll remains high.
Summary
Blackwattle Investment Partners
30 Nov 2024
$174.55
- XRO was the largest positive contributor to performance during the month.
- XRO rallied 16% in November on the back of a strong 1H25 result.
- XRO is a market-leading, global accounting SaaS platform.
- XRO’s 1H25 result showcased benefits of the cultural change brought in by CEO Sukhinder Singh-Cassidy in early 2023.
- XRO delivered 25% revenue growth, an EBITDA margin of 31% and free cash flow growth of over 95%.
- XRO's results beat market expectations and demonstrated increasing pricing power, momentum in payments, and subscriber growth.
- Market expectations remain conservative with consensus anticipating a significant fade in revenue growth.
- Blackwattle Investment Partners continues to see strong upside for XRO as it aims to be the leading global accounting software for SMEs.
- XRO is viewed as one of the highest quality companies on the ASX with a significant long-term, compounding growth profile.
Summary
ELM Responsible Investments
30 Nov 2024
$174.55
- ELM Responsible Investments notes that Xero delivered strong financial performance in the first half of FY2025.
- Revenue growth reached 25% year-over-year, totaling $996 million.
- The growth was driven by balanced contributions from subscriber growth (up 10%) and Average Revenue Per User (ARPU) expansion (up 11%).
- Adjusted EBITDA rose 52% to $312 million, reflecting disciplined capital allocation and strategic execution.
- Regional highlights included 27% revenue growth in Australia and 13% in New Zealand.
- International markets like the U.K. and U.S. contributed to double-digit subscriber additions.
- Xero's focus on simplifying subscription plans and leveraging pricing changes supported ARPU growth.
- The company's growth signifies a broader digital transformation in the small and medium-sized enterprise (SME) sector.
- By providing accessible financial management tools, Xero is empowering small businesses, potentially leading to increased productivity and economic growth.
- Xero's expansion in international markets indicates a global shift towards digital financial solutions.
- This shift could contribute to improved financial literacy and management practices across diverse business communities.
Summary
Hyperion Asset Management
30 Nov 2024
$174.55
- Hyperion Asset Management notes a strong H1 FY25 result for Xero Limited, with revenue growth of 25% YoY to NZ$996m.
- The company achieved Rule of 40 for the second consecutive period, supported by a doubling of free cash flows.
- Subscriber growth was robust at 10% YoY, with average revenue per user increasing by 11% YoY.
- Revenue growth was consistent across all regions: ANZ up 23% YoY, UK up 22% YoY, North America up 25% YoY, and Rest of World up 22% YoY.
- Xero anticipates regulatory support in the UK with the implementation of Making Tax Digital phase 3 set for 2026 and 2027.
- Prudent expense management led to a doubling of free cash flows to NZ$209m and an 800bps expansion in the free cash flow margin.
- Xero's free cash flow margin reached 21%, contributing to the Rule of 40 achievement at 44%.
- Increased cadence of product innovation aligns with Xero's 3x3 Strategy, including new features like Tap to Pay and the beta release of a Gen-AI companion.
Summary
ELM Responsible Investments
30 Sept 2024
$149.44
- Xero is a global leader in cloud-based accounting software, enhancing the lives of small businesses.
- Founded in New Zealand in 2006, Xero has rapidly grown to millions of subscribers in over 180 countries.
- In Q2 2024, Xero reported a 22% increase in operating revenue, totaling approximately NZD $1.7 billion.
- Subscriber base increased to 4.2 million, marking an 11% rise from last year.
- Strong performance in key markets, particularly Australia, contributing approximately NZD $692 million in revenue.
- International market revenue grew by 24%, showcasing Xero's robust global presence.
- Adjusted EBITDA surged by 75% to approximately NZD $527 million, reflecting operational improvements.
- Xero is enhancing its platform through key partnerships and product launches, focusing on payment capabilities and onboarding processes.
- The company is investing in AI and automation to improve user experience and operational efficiency.
- Despite restructuring and exits from non-core businesses, Xero remains focused on driving subscriber growth and increasing ARPU.
- With a strong financial position and expanding global presence, Xero is well-equipped to capitalize on the global digitisation of small business accounting.
- ELM Responsible Investments continues to hold because of Xero's potential to provide long-term value to investors.
Summary
Endeavor Asset Management
31 May 2024
$135.00
- Xero's share price increased by 10.6% in May, indicating investor confidence in its long-term growth strategy.
- The company reported a strong FY24 result with better than expected EBITDA margins due to effective cost management.
- FY25 cost ratio guidance of ~73% appears conservative, given 2H24's cost ratio of ~68%.
- XRO's ex-US sales grew 23% in FY24, which is crucial for their competitive strategy against Quickbooks.
- Expected continued dominance in the AU/NZ markets through price increases, product bundling, and an expanded product range.
- Endeavor Asset Management continues to hold due to these positive indicators and growth potential.
Summary
Blackwattle Investment Partners
30 May 2024
$134.03
- Xero was the largest positive contributor to performance during the month.
- XRO rose 11% in May, on the back of a very strong FY24 result and solid outlook.
- XRO is a market-leading, global accounting SaaS platform.
- XRO’s FY24 result showcased the benefits of the cultural change brought in by CEO Sukhinder Singh-Cassidy in early 2023.
- Balanced top-line growth with profitability demonstrated in FY24 results.
- XRO delivered a record EBITDA margin of 31% and free cash flow growth of over 280%.
- Significantly beat market expectations with FY24 results.
- This result has cemented our view of XRO being one of the highest quality companies on the ASX.
- Blackwattle Investment Partners continues to see significant upside for XRO.
- XRO is on a journey to being the market-leading global accounting software for SMEs.
- Expecting strong financial metrics to continue.
Summary
Endeavor Asset Management
28 Feb 2024
$127.00
- Xero Ltd (ASX:XRO) saw a 15% increase in February.
- Endeavor Asset Management originally invested at $62 per share in March 2020.
- Exited investment at $95 per share in September 2020, re-invested at $72 per share in February 2023.
- Endeavor continues to hold their position with occasional sales for portfolio management.
- Long-term conviction based on sticky, high-quality recurring revenue leading to sustainable free cash flow (FCF).
- FY23 marked a significant inflection point as FCF rose to ~$121 million from $12 million in FY22.
- Consensus estimates project FCF to grow to ~$226 million in FY24, with a CAGR of 28% projected to reach $459 million by FY27.
- Xero introduced its '3x3 Strategy' during its inaugural investor day, focusing on core offerings in Australia, UK, and USA.
- Plans to develop adjacent revenue streams in these core markets while aiming for profitable growth in non-core markets.
- Significant investments have been made into enhancing the senior leadership team.
- Xero is advancing artificial intelligence with GenAI for both internal and customer-facing applications.
- FY24 operating expense guidance set at ~75% of operating revenue, with expectations of a lower rate in 2H24.
Summary
Please note: The completeness, accuracy or current status of the investments referenced are not guaranteed.
ANALYST INSIGHT
Equity Research Analyst
"It appears that Xero is on the brink of a transformative leap, with its robust free cash flow growth and strategic focus suggesting a potentially explosive trajectory. Investors may want to keep a close eye on how this unfolds in the coming years."
Last Updated: 31 Oct 2025
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Frequently Asked Questions
Who is investing in Xero Ltd (ASX:XRO)?
Fund managers including Endeavor Asset Management, Blackwattle Investment Partners, Yarra Capital Management, ELM Responsible Investments, Pendal Group, Antares Capital, Milford Asset Management, Maple-Brown Abbott, Smallco Investment Manager, Hyperion Asset Management, Lakehouse Capital, 1851 Capital, QVG Capital and First Sentier Investors have invested in Xero Ltd (ASX:XRO).
Why do fund managers invest in Xero Ltd?
Fund managers invest in Xero Ltd due to its strong growth trajectory, evidenced by a significant increase in free cash flow (FCF) from $12 million in FY22 to an expected $226 million in FY24, with a projected CAGR of 28% through FY27. The company's strategic focus on its '3x3 Strategy' aims to enhance its core offerings in key markets while exploring new revenue streams. Additionally, Xero's commitment to integrating artificial intelligence into its operations and customer services, along with a robust leadership team, positions it for sustainable, profitable growth.
What happened to Xero Ltd (ASX:XRO)?
Fund managers are investing in Xero Ltd due to its dominant position in the Australian accounting software market, holding a 60% market share. Despite recent challenges from capital raising and acquisitions, such as the purchase of US company Melio, the strategic rationale for growth in the US market is strong. Analysts anticipate that earnings will stabilize and improve post-acquisition, reflecting confidence in Xero's long-term growth potential and innovative capabilities.