Xero Reports 23% Revenue Surge as Platform Strategy Pays Off
Xero reported full-year earnings to 31 March 2025 showing revenue growth of 23% to NZ$2.1bn (US$1.23bn), highlighting the company's focus on balancing growth with profitability.
The New Zealand-headquartered firm increased its adjusted EBITDA by 22% compared to the previous financial year, reaching NZ$640.6m (US$376m), with EBITDA of NZ$638.5m (US$375m). Free cash flow grew 48% to NZ$506.7m (US$297m), representing a margin of 24.1%, up from 20% in FY24.
The results enabled Xero to deliver a Rule of 40 outcomeâa metric combining revenue growth percentage and free cash flow margin percentageâof 44.3%, exceeding the benchmark that many SaaS companies target as a sign of financial health.
"Our FY25 results demonstrate Xero's macro-resilient growth and effective execution of our strategy," says CEO Sukhinder Singh Cassidy. "Our focus on balanced profitable growth has enabled us to again deliver strong EBITDA growth and a greater than Rule of 40 outcome."
Subscriber growth and revenue per user
Xero reported annualised monthly recurring revenue (AMRR) growth of 22% to NZ$2.4bn (US$1.4bn). The company added 254,000 net subscribers during the financial year, bringing its total subscriber base to 4.4m.
However, these subscriber figures were affected by the company's removal of 160,000 "long idle subscriptions" during the first half of the financial year. Excluding this adjustment, the company would have added 414,000 subscribers, representing 10% growth.
Average revenue per user (ARPU) increased 15% to NZ$45.08 (US$26.50), driven by what the company described as improving product mix, pricing changes, and continued payments growth.
The company's churn rate, which measures the percentage of customers who discontinue their subscriptions, remained at 1.03% on a monthly basis when excluding the removed idle subscriptions.
Product development focus
Throughout FY25, Xero continued to focus on its "Win the 3x3" strategy, which targets improvements in three core areasâaccounting, payroll and paymentsâacross its three key markets.
In accounting, Xero launched "Xero Simple" to support UK customers with Making Tax Digital for Income Tax requirements. The company expanded its US product offering by increasing direct bank feeds from 20 to over 700 in the past two years.
"We have achieved this while maintaining strong momentum across our strategic pillars and, importantly, have increased our product velocity to bring more value to customers through our focused 3x3 strategy"
The company acquired Syft Analytics and began rolling out "Analytics powered by Syft" to select US customers, signalling its intent to enhance data analysis capabilities within its platform.
Payroll enhancements included improved automation for superannuation payments in Australia and a beta version of a rostering feature. In the UK, Xero introduced a new payroll manager with holiday entitlement calculator improvements.
For payments, Xero launched Tap to Pay functionality in its mobile app for Australian, UK and US small businesses, allowing them to accept payments directly via smartphone. The company also expanded its UK bill payments solution through a partnership with Crezco.
The company also introduced "Just Ask Xero" (JAX), a generative AI-powered assistant designed to help customers operate their businesses more efficiently. By the end of the financial year, this feature was available in beta to all business edition customers globally.
For the 2026 financial year, Xero expects total operating expenses as a percentage of revenue to be approximately 71.5%, with a higher ratio in the first half of the year compared to the second half.
The company reaffirmed aspirations outlined in February 2024 to double the size of its business while maintaining Rule of 40 or greater performance over time.
"We have achieved this while maintaining strong momentum across our strategic pillars and, importantly, have increased our product velocity to bring more value to customers through our focused 3x3 strategy," Singh Cassidy concludes.
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