Kalkine: Xero’s Growth Story Gains Steam in 2025: A Fresh Look at (ASX:XRO)

June 12, 2025 03:02 PM AEST | By Team Kalkine Media

Kalkine: Xero’s Growth Story Gains Steam in 2025: A Fresh Look at (ASX:XRO) — Image source: Shutterstock

A Global Tech Success from New Zealand

Founded in 2006 by Rod Drury in Wellington, Xero has evolved into a global cloud-based accounting software platform. While Drury stepped down from leadership in 2018 and left the board in 2023, the company has continued to expand its footprint. Today, Xero serves millions of small businesses and accounting professionals with real-time financial data accessible from any device.

The company’s presence spans major regions such as New Zealand, Australia, the United Kingdom, and increasingly, the United States. Its software-as-a-service (SaaS) model has positioned it well in the evolving landscape of business digitisation.

Why the Broader Tech Sector Backs the Trend

Xero is part of the S&P/ASX 200 Information Technology Index (ASX:XIJ), which has delivered an impressive 14.88% average annual return over the last five years—outpacing the broader ASX 200 Index’s 8.48%. Here are some reasons tech firms like Xero continue to garner attention:

Scalable Margins: Xero reported gross margins of 88.2% and an operating margin of 15.1% in its latest financial results. These robust margins reflect the capital-light nature of digital businesses and highlight the efficiency of its SaaS model.
Predictable Revenue Streams: With its recurring revenue approach, Xero benefits from predictable income, a valuable trait especially during uncertain economic conditions. Subscription-based revenue helps to smooth earnings over time and provides more visibility into future performance.
Global Reach with Minimal Friction: Tech firms are less burdened by physical infrastructure and international barriers. Xero, through cloud access, can scale across geographies without the traditional constraints faced by physical businesses.

Understanding Current Valuation

From a valuation perspective, the current price-to-sales (P/S) ratio for Xero stands at 18.37x, slightly below its five-year average of 18.65x. This suggests either recent price movements or a rise in revenues—and in the case of Xero, the latter holds true. Revenue has shown consistent growth over the past three years, reinforcing long-term optimism.

While P/S ratios offer a glimpse into valuation, they are best interpreted alongside other metrics and qualitative insights.

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