Xero’s high-retention SaaS moat and Melio-led US payments expansion offer substantial upside, but execution, margin dilution and leverage make the recovery path dependent on FY28 synergies.
Overview
Xero is a global cloud-native accounting SaaS platform serving 4.92 million SMB customers and their professional advisors. Its revenue is predominantly recurring subscription revenue, supported by low churn, pricing power and a broad ecosystem, while the FY26 integration of Melio adds a lower-margin but potentially high-growth payments engine. **FY26 revenue rose 31% to NZ$2.753 billion**, with customers up 11% and ARPC up 23% to NZ$55.44; however, NPAT declined 27% to NZ$167.4 million because of NZ$52 million of Melio transaction and integration costs. Free cash flow remained strong at NZ$554.0 million, up 9%. Management raised FY27 guidance to NZ$3.62–3.73 billion of revenue and NZ$860–920 million of adjusted EBITDA. The investment case rests on ANZ and UK resilience, compliance-driven cloud adoption, and Melio monetising US payments. Management expects US$70 million of revenue synergies by FY28 and Melio adjusted EBITDA breakeven in H2 FY28. At A$64.45, the stock is materially below its 200-day average, creating upside if execution restores growth and margins, but leverage, dilution and US competition remain significant near-term constraints.