Xero first-half profit crashes to $18.6m, but it lifts outlook and announces A$1 billion buyback

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The profit plunge was attributed to costs associated with integrating Melio, the unprofitable, 87,000-customer Israeli-American payments platform that Xero bought in June last yea…

Xero’s profit for its half-year ending September 30 crashed to $18.6 million from the year-ago period’s $134.8m.

The profit plunge was attributed to costs associated with integrating Melio, the unprofitable, 87,000-customer Israeli-American payments platform that Xero bought in June last year in a deal worth up to US$3 billion with earnouts.

Adjusted earnings before interest, tax, depreciation and amortisation (ebitda), excluding non-cash items and one-offs, increased 3% to $362m and the firm lifted its full-year targets slightly (more below).

The cloud accounting firm also announced an up to A$1b ($1.2b) share buyback, to be completed over the next 12 months.

The buyback excludes a separate A$550m programme to prevent dilution from share-based compensation, which has been completed.

Xero said it also wanted to return capital to shareholders because “the board believes the current share price does not reflect Xero’s long-term value”.

The stock has fallen 49.4% over the past 12 months. The tumble started with the announcement of the Melio deal, but has been amplified by concerns about AI (artificial intelligence)-powered competition.

In an ASX filing this morning, Xero said the Melio costs were expected.

“Melio is currently a loss-making business, reflecting its stage of maturity and journey to scale.”

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