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Why the Xero (ASX:XRO) share price is getting beat down

The Xero (ASX: XRO) share price is currently down over 4% after reporting its FY20 result.

What is Xero?

Xero has become the dominating player in the business and accounting software market in Australia, New Zealand and the UK, since being founded in New Zealand in 2006. Employing more than 2,300 people, today Xero helps more than 1.8 million subscribers manage their accounting and tax obligations.

Why is the Xero share price down?

The Xero share price is being affected because investors had very high expectations of the company. The company’s reported numbers were attractive.

It announced 30% growth of operating revenue to $718.2 million. Annualised monthly recurring revenue (AMMR) rose by 29% to $820.6 million. Total subscribers rose by 26% to 2.285 million with good growth across every region.

The gross margin percentage increased by another 1.6% to 85.2%, up from 83.6% last year. EBITDA excluding impairments jumped by 52% to $139.2 million. EBITDA increased by 88% to $137.7 million.

Net profit went from a loss of $27.1 million last year to a profit of $3.3 million this year. Free cash flow climbed 320% to $27.1 million.

Investors may not liked to read that business trading in early FY21 has been impacted by COVID-19. Xero was unable to provide any guidance due to that uncertainty. Xero’s clients are mainly small and medium businesses, which are being hit harder than large businesses (due to access to funding) and individuals (thanks to government support).

However, as a provider of cloud accounting services, Xero is well placed to support clients under the current conditions.

Disclosure: Jaz does not own shares of any of the shares mentioned at the time of writing.

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