Xero Posts NZD 2.1 Billion Revenue with 22% EBITDA Growth in FY25
Xero Limited has reported a robust FY25 with 23% revenue growth and a Rule of 40 score exceeding 44%, underscoring its balanced approach to growth and profitability.
- 23% operating revenue growth to NZD 2.1 billion
- Adjusted EBITDA up 22% to NZD 640.6 million
- Free cash flow margin improved to 24.1%
- Subscriber base expanded despite removal of idle accounts
- Launched GenAI-powered assistant and enhanced 3x3 strategy
Strong Financial Performance
Xero Limited (ASX: XRO) has delivered an impressive FY25, reporting a 23% increase in operating revenue to NZD 2.1 billion. This growth was accompanied by a 22% rise in adjusted EBITDA, reaching NZD 640.6 million, and a free cash flow margin that improved to 24.1%. These figures culminate in a Rule of 40 score of 44.3%, a benchmark that combines revenue growth and profitability to assess SaaS company health.
Balanced Growth and Operational Discipline
CEO Sukhinder Singh Cassidy highlighted the company’s focus on balanced profitable growth, noting that Xero’s operating expense ratio stood at 71.8%, reflecting disciplined cost management alongside continued investment. The company’s subscriber base grew robustly, adding 414,000 net subscribers after adjusting for the removal of long idle accounts, underscoring the platform’s resilience and customer value.
Strategic Product Advances
Xero’s 3x3 strategy, targeting accounting, payroll, and payments across its key markets, showed tangible progress. Notable product launches included Xero Simple in the UK to support tax digitalisation, expanded bank feed integrations in the US, and the introduction of Just Ask Xero (JAX), a GenAI-powered assistant designed to enhance small business efficiency. Payment innovations such as Tap to Pay and new bill payment solutions further strengthened the platform’s ecosystem.
Market Momentum and Regional Highlights
Australia and New Zealand markets delivered double-digit revenue growth of 21%, with ARPU increasing 10% and subscribers reaching 2.6 million. International markets grew revenue by 24%, driven by a 21% ARPU increase and subscriber growth to 1.8 million. These results reflect Xero’s expanding global footprint and the growing demand for integrated small business solutions.
Looking Ahead
For FY26, Xero expects operating expenses to remain around 71.5% of revenue, with higher costs anticipated in the first half due to non-recurring remuneration impacts and planned investments. The company maintains its aspiration to double its business size while sustaining Rule of 40 performance, balancing subscriber growth with ARPU expansion. This outlook signals continued strategic focus and operational discipline as Xero navigates competitive SaaS markets.
Bottom Line?
Xero’s FY25 results reinforce its position as a resilient SaaS leader, but investors will watch closely how it balances growth and profitability amid rising expenses.
Questions in the middle?
- How will Xero’s GenAI assistant impact customer retention and acquisition?
- What are the risks to sustaining Rule of 40 performance amid planned FY26 investments?
- How will competitive pressures in key markets affect subscriber growth and ARPU?
