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Here’s why the Xero (ASX:XRO) share price is a top buy right now: expert

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The Xero Limited (ASX: XRO) share price could represent a top investment opportunity at the moment.

For readers that aren’t aware, Xero is a cloud accounting software business that aims to provide beautiful accounting to users.

There are many different users in the ecosystem including business owners, accountants, bookkeepers, advisors and employees.

It aims to make things easy to understand, simple to use, efficient and increasingly automated.

This offer is resonating with customers and that’s one of the first reasons why the Xero share price could be a smart idea:

Subscriber growth

Xero has come a long way over the last decade. Its cloud-only software has won over millions of subscribers. In the FY22 half-half-year result, Xero revealed its total subscribers had reached 3 million, up 23% year on year.

It now has a very strong position in New Zealand and Australia. But the company is growing quickly in several other countries too like the UK, South Africa and Singapore.

The company recently made an acquisition (called TaxCycle) in Canada that has quickly ramped up its presence in the country, which has a materially bigger population than Australia.

Strong metrics

One of the factors that may be helping the Xero share price is a number of its strong metrics.

It has a very high gross profit margin (over 87% and rising), which allows the business to re-invest a high proportion of its new revenue into more growth investing. Management is indeed prioritising spending growth over generating a big net profit at this stage.

The average revenue per user (ARPU) increased by 5% to $31.32 in HY22. Churn also remains very low.

The above factors helped the annualised monthly recurring revenue (AMRR) increase by 29% to $1.13 billion in HY22. Xero’s lifetime value of subscribers increased 61% to $9.94 billion.

Growing ecosystem

Xero wants to be the leading global platform for smaller and medium businesses around the world.

For a long time, the company has provided a very powerful accounting and business management system for business owners and accountants. But it has also allowed external software developers to provide support and technology for businesses with extra analysis, unique inventory management tools and so on. There are lots of different options.

Xero has also been acquiring businesses to expand its offering. Recent acquisitions include: Planday, Tickstar and Waddle.

Xero share price target

Morgan Stanley rates the business as a buy, with a price target of $137. That’s approximately 40% higher than where it is today.

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