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ยท Posted on
February 21, 2024

Xero's revenues grew to a hot and spicy NZ$1 billion but its share price went cold on the news and uh... WTF?

Xero must be so happy... and so sad after seeing such conflicting developments.

What's the key learning?

  • Businesses need to choose between growth and profit - it's rare to be able to do both simultaneously.
  • Despite being 16 years old, Xero is still choosing growth.

๐Ÿ‘‰ Background: Xero is a New Zealand based tech company that helps small and medium businesses with their accounting and payroll stuff. It was founded in 2006 and listed on the ASX back in 2018.

๐Ÿ‘‰ What happened: Xero just revealed its operating revenue rose an impressive 29% to $NZ1.1 billion for the year to March 31. That's building on 18% growth this time last year ๐Ÿค‘. Buut its share price tanked 12% on the news.

๐Ÿ‘‰ What else: Shareholders didn't love that Xero's costs also soared, particularly across marketing, product design and dev. The result? Xero's cashflow actually tanked by more than $50 mil! Makes a lil more sense now.

๐Ÿ”” What's the key learning?

๐Ÿ’ก When it comes to businesses, there are two major strategies: growth or profit. It's a fine line to straddle, so most tech businesses need to choose one.

๐Ÿ’ก You're either in a rapid growth phase to acquire customers and get market penetration, or you're in the maximising profit phase - with less focus on growth and marketing and more focus on pricing. It's rare to see both simultaneously.

๐Ÿ’กXero has continued to choose growth, despite being a 16-year-old business. Many investors are ready to start seeing Xero's cash profits stack up, but the company sees sustainable growth as the ultimate outcome.

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