Cloud-based accounting software developer Xero continues to burn through its cash but positive signs are emerging in its key North American market, Craigs Investment Partners broker Chris Timms says.
North American subscribers rose 114% in the six months ended September and total subscriber growth of 222,000, or 60%, to 593,000 was reported for the year ended September.
Subscription revenue was up 72% in September at $89.7million from $52.2million in the previous corresponding period, but the operating deficit of $47.4million was up 70% from $27.9million in the pcp.
Operating cash flow blew out to a deficit of $23.4million, up 30% on the pcp.
Mr Timms said Xero was still in building phase and wanted to increase its distribution and subscriber base before turning its mind to profitability.
''Profitability is secondary right now to Xero building a base. Being a technology company, it wants sustainable volumes of subscribers and sales. When it has done with investing, it can turn its attention to building a profitable base,'' he said.
Forsyth Barr broker Ken Lister said overall Xero produced a mixed result.
''Financials are as expected but the United States market, in particular, is not demonstrating the growth that is required to justify the continued investment.''
One positive note was the message from Xero about acquiring customers economically, pricing for value and generating long-term value and margins - messages that had previously been missing from company reports, he said.
The issue for Xero not yet clear was what would it cost to actually deliver meaningful US growth.
''Our view is for Xero to deliver significant growth in that market, it will need to increase its rate of cash burn. In the meantime, it continues to grow a strong Australasian and UK business,'' Mr Lister said.
Xero chief executive Rod Drury said in his outlook the company had continued to develop its team and its capability, and was leading the market in innovation with disciplined investments in product and distribution channels while delivering another period of strong growth in new subscribers.
''We've achieved strong growth for the first half and we're on track to achieve $200million subscription revenue, based on June 2015 foreign exchange rates, this financial year.
''The company is focused on containing its full financial year cash outflow to similar levels to the prior financial year. This growth, as well as the rigour we have established within the business, positions Xero for long-term value creation.''
Xero shares last traded at $18.17, up 2.4%.
