Xero posted record revenue of $2.75bn, up 31%, but statutory net profit fell 27% as the Melio acquisition pushed the company into net debt. The gross margin also compressed as the payments business scales.
Xero has reported record full-year revenue of $2.75 billion for the year ended March — a 31 percent increase driven by strong customer growth and accelerating expansion in the United States. But the headline revenue figure comes alongside a meaningful decline in profitability and a structural shift in the company's balance sheet.
Statutory net profit after tax fell 27 percent to $167.4 million, from $227.8 million a year earlier. The primary cause was the cost of acquiring Melio, a payments platform Xero bought in October. The deal pushed Xero from a net cash position into net debt, and the transaction costs, higher financing expenses, and operating losses from the acquired business weighed on the reported profit line.
What the acquisition of Melio is doing to the margin
The Melio deal is a strategic move — Xero is building out its payments and working capital capabilities within the accounting platform, which should deepen customer lock-in and create new revenue streams. But it comes with a margin consequence.
Xero's gross margin contracted from 89 percent to 83.9 percent over the year. That compression reflects the different economics of a payments business: Melio processes transactions and earns fees, which have a different margin profile than Xero's traditional software subscription revenue. As Melio scales within Xero's platform, this margin dynamic becomes more significant.
Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) rose 24 percent to $789.5 million, which gives a cleaner view of operating performance before the financing and acquisition costs — and that number reflects solid underlying execution.
The US growth story
Xero added 506,000 customers over the year, taking its total base to 4.9 million worldwide. The US is where the growth momentum is strongest. Revenue in the United States surged, helped by the integration of Melio and strong organic expansion in that market.
That is meaningful for a New Zealand-founded software company. Xero's home market is mature, and its UK business is substantial but more settled. The US represents the largest total addressable market and the most competitive environment — and Xero is gaining ground there, partly through Melio's existing customer relationships.
No dividend — and what that means
Xero does not pay a dividend. The company preference is to reinvest all free cash flow into growth, and with $554 million in free cash flow generated over the year (up 9 percent), there is significant capital being deployed. The question for investors is whether the returns from that reinvestment — particularly in AI capabilities and US expansion — will exceed the cost of capital over time.
The AI positioning in the results is worth noting. CEO Sukhinder Singh Cassidy described Xero as "well positioned to be a long-term AI winner", citing proprietary data and customer trust as the foundation. That is a narrative many enterprise software companies are using; what separates the credible from the aspirational will be execution over the next two to three years.
The honest summary
Xero is growing strongly and making the right strategic investments — but those investments are currently compressing margins and profitability in the reported numbers. For a company at its stage, that is not necessarily a problem if the growth investments are sound. The Melio acquisition will be a net positive or negative depending on whether it delivers the revenue synergies and customer retention benefits Xero is expecting.
This article is for general information only and is not personalised financial advice. Seek advice from a licensed financial adviser (registered on the FSPR) for guidance specific to your situation.