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COVID-19 a tailwind for Xero as digitisation trend ramps up

Xero chief executive Steve Vamos says faster adoption of digital technologies by small businesses and big companies during the coronavirus pandemic is underpinning subscriber and revenue growth for the accounting software platform.

The Auckland-based, ASX listed company reported revenue of $NZ409.8 million, an increase of 21 per cent, compared to the same period last year in its half year earnings released this month.

Mr Vamos told The Age and The Sydney Morning Herald while Covid 19 raised significant challenges it had also driven the faster adoption of digital technologies such as Xero’s products.

“We do think that the experience of what’s happened to all of us through this have heightened as we can see in many contexts the importance of digital platforms and employing digital technology,” he said. “It really has been an unusual and uncertain time in the context of all of that we feel pleased by the revenue growth and the subscriber growth.”

Xero shares rose 0.6 per cent to close at $123.50.

The stock has increased by 110 per cent since March when COVID-19 first hit the markets.

Xero reported net profit of $NZ34.4 million up from $NZ1.3 million with savings coming from reduced travel, marketing spend and the cancellation of its annual Xerocon conferences.

Mr Vamos said Xero always invested most of what it generated back into the business and that was was still its intention with a plan to ramp up investment in sales and marketing as conditions returned to normal.

“Travel will be interesting,” he said. “I think we will go back to travelling again when the time is right and safe for our people. But I don’t think we’ll travel as much.”

The platform grew its subscriber numbers to 2.45 million, a 19 per cent increase from a year ago.

Subscriber numbers in Australia topped 1 million for the first time driven by the move to Single Touch Payroll and the government’s JobKeeper stimulus payments.

Mr Vamos said Xero continued to focus on long term growth and the trend towards digitisation would not go away.

“Our ambition remains to grow the small business platform and drive growth through additional revenue streams including adjacent products such as payroll expenses and projects and financial services related revenue such as payments and bill payables,” he said.

Garry Sherriff of RBC Capital Markets said Xero’s solid subscriber growth particularly in Australia had been driven by government stimulus measures for small businesses.

“Xero’s single touch payroll product with captures information for the Australian Tax Office assisted the Australian result this half in our view as it helps small businesses determine eligibility for JobKeeper payments,” he said. “In overseas markets its more of a mixed muted as UK and North America have been more deeply affected by COVID and the impact on small businesses has been greater in our view.”

Article first published on 12 November 2020 by Cara Waters for Brisbane Times. Retrieved from https://www.brisbanetimes.com.au/business/small-business/covid-19-a-tailwind-for-xero-as-digitisation-trend-ramps-up-20201112-p56e1e.html