Why Xero Ltd (ASX: XRO) is up more than 10%
Xero (ASX: XRO) has rallied strongly following its H1 FY27 result, with investors focusing on upgraded revenue guidance and a substantial share buyback despite weaker-than-expected earnings.
- First-half operating revenue rose to NZ$1.75bn from NZ$1.19bn a year earlier, beating consensus of NZ$1.73bn.
- However, adjusted EPS of NZ$0.48 missed expectations of NZ$0.54, while net profit fell sharply to NZ$18.5m from NZ$136m, well below forecasts of NZ$54.8m.
Importantly, Xero upgraded its FY27 revenue guidance to NZ$3.77–3.83bn from NZ$3.62–3.73bn, comfortably ahead of consensus of NZ$3.67bn, while narrowing adjusted EBITDA guidance to NZ$880–920m, broadly in line with expectations.
The standout announcement was a new $1bn share buyback over the next 12 months, signalling management’s confidence in the business and providing a potential source of support for the share price. Investors appear willing to look through the disappointing bottom-line result, instead focusing on stronger revenue momentum, an improved outlook and the capital return.
For MM, the combination of upgraded guidance and a significant buyback is encouraging following the stock’s dramatic decline, although converting strong revenue growth into sustainable earnings and cash flow remains the key moving forward.
- MM remains long and bullish towards XRO around $78
