Xero announces $1.2 billion in revenue

Small business accounting platform Xero has become a billion-dollar company, announcing a 20% increase in operating revenue to bring its total, for the first time, to $1.2 billion, and aims to double it by 2028.

Xero CEO Sukhinder Singh Cassidy, in an email, attributed much of the results to a growing user base as well as increases in average revenue per user. Between last year and this year, total net subscribers increased 10%, from 4.186 million to 4.590 million, and its average revenue per user grew 15%, from $37.38 to $43.08. She also pointed to localization to meet customer needs in different markets as well as the new features added this year, particularly those with AI. 

“Xero’s momentum – particularly in the US – is being driven by strong core fundamentals and strategic investment in our technology. As small businesses face increased external pressures and uncertainty, adoption of cloud accounting and workflow automation for SMBs continues to accelerate,” she said in an email. 

The other major factor she mentioned was the acquisition of Melio, which Xero acquired this past June, which she said positions the company well to accelerate our opportunities in the US, as US customers tend to be early adopters of embedded payments and bill-pay solutions, which have higher average revenue per user.

The acquisition had a visible impact on the company’s metrics: total operating income decreased 22% compared to the previous year, but when the purchase is excluded from the figure then operating income actually increased 6%. At the same time, Xero’s FY26 Outlook now includes Melio, which Xero said does provide a small benefit, with other drivers including improved efficiencies, contributing the majority of the reduction. With Melio’s inclusion in the outlook, total operating expenses as a percentage of revenue is now expected to be around 70.5% in FY26 when they previously expected this ratio to be around 71.5%. This ratio is expected to be lower in H2 FY26 versus H1 FY26. 

Cassidy believes that the Melio acquisition will prove to be a key factor in meeting their goal to more than double its FY25 group revenue in FY28, particularly for the U.S. market. 

“We expect the combined Xero and Melio business to significantly accelerate US revenue growth and give us the opportunity to more than double Xero’s FY25 group revenue base in FY28. And this is before synergies. We also believe we can deliver a greater than Rule of 40 outcome in FY28,” she said, adding that “in the interim period prior to FY28, Xero expects to deliver below Rule of 40 outcomes on a pro forma basis.” 

She also discussed the role of Xero’s embedded payroll solution for U.S. customers, currently in beta, through a partnership with payroll solutions provider Gusto. 

“In October, we launched the beta of our embedded payroll solution for US customers through our partnership with Gusto, a provider of cloud-based payroll, benefits and HR solutions. The embedded solution allows customers to manage payroll directly within Xero and is a critical step in delivering a seamless experience where SMBs can complete their three main Jobs to be Done (Accounting, Payroll and Payments). The immediate focus is on ensuring a successful beta rollout and customer adoption,” she said. 

Xero also generated free cash flow of $321.1 million with a free cash flow margin expanding to 26.9%, up from 21.0% in the prior period. Asked what Xero was going to do with all this money, the CEO said they will focus on product development by continuing to build on their platforms to deliver more capability and flexibility to customers. In particular, the company will be making further investments in AI technology to be built into its software. 

“We will continue to take a disciplined approach to how we allocate capital. Maintaining balance sheet strength is important, and it puts us in the best position to pursue our strategy. In H1 FY26, we continued our strong product velocity, and our focus remains on delivering value to our customers and partners.  As a leading global SaaS business — long powered by machine learning and AI — Xero also continues to see AI as a significant opportunity to innovate and invest to unlock value for customers,” she said. 

Such moves are in service of Xero’s 3×3 strategy, which refers to what Cassidy believes are its three largest market opportunities: the U.S., the U.K. and Australia, as well as the three “super jobs” of core accounting, accounts payable and receivable, and payroll. She said that they’re about halfway through the FY25-27 strategy timeline and is  very encouraged about the progress they’ve made so far. She said that, in the meanwhile, they’re going to maintain their current strategy as they move toward their goal of doubling operating income by 2028.

This means they will remain focused on driving subscriber growth through product innovation and market penetration, increasing overall average revenue per user, building strategic partnerships, and localization to meet customer needs in different markets. She added that price will also remain important as Xero adds value to its product and Melio positions it well to accelerate Xero’s opportunities in the US.

“Due to our consistent strategy for Xero globally we are able to leverage product expertise and capability as part of our focus on completing these jobs for each market. How we complete these jobs varies by market, and we take a build, partner, buy approach to meet our customers’ needs,” she said.