Sydney, May 16, 2026, 05:08 (AEST)
Xero Limited shares jumped 8.1% to A$79.67 Friday, clawing back ground after plunging 9.0% the previous session. Investors digested news of a share buyback authorization of up to A$550 million, set against a 27% annual profit decline. The Wellington accounting software company said the move aims to counter share dilution from employee awards. Its Appendix 4E flagged net profit at NZ$167.4 million.
The shift is significant: Xero wants investors focused beyond the immediate impact from Melio, its recently acquired U.S. payments firm aimed at ramping up its North American presence. Shares remain off by roughly 55.7% over the past year, so there’s not much tolerance left for further margin disappointments.
Xero reported operating revenue of NZ$2.75 billion for the year ended March 31, a 31% increase. Adjusted EBITDA climbed 18% to NZ$757.4 million. Free cash flow reached NZ$554 million. The company closed out the year serving 4.92 million customers.
Xero CEO Sukhinder Singh Cassidy described “powerful momentum” in the company’s markets after it added 110,000 new customers in the U.S.—including clients from Melio’s direct-payments business. Cassidy also called out “disciplined execution” in the results, clearly addressing investor worries about U.S. execution risk that have weighed on the stock.
According to Citi’s Siraj Ahmed, the net profit came in below expectations due to steeper interest and tax expenses. Still, adjusted earnings were 2% ahead of consensus. Ahmed described it as “a strong result” given U.S. momentum, rising subscriber numbers, Melio’s trajectory, and the FY27 outlook. Capital Brief
Xero is targeting FY27 operating revenue between NZ$3.62 billion and NZ$3.73 billion, alongside adjusted EBITDA in a NZ$860 million to NZ$920 million range. The forecast factors in as much as NZ$55 million in additional U.S. brand investment. Adjusted EBITDA is set to land more in the second half.
Melio is still the main play here. Last year, Reuters said Xero struck a deal to acquire the U.S.-Israeli payments firm for US$2.5 billion—cash and stock—along with as much as US$500 million tied to future milestones. The move aims to fold payments into Xero’s accounting platform and push further into the U.S. market.
Xero is stepping up its push into territory dominated by Intuit’s QuickBooks, known for its cloud-based accounting tools, and Sage, which covers accounting, payments, and AI-powered options for small and midsize businesses. Xero claims its integrated accounting and payments system lets smaller firms handle cash flow, billing, and invoices all in a single place—instead of juggling disconnected tools.
Xero is deepening its AI push. The company’s site touts its JAX tool, designed to handle business queries, process financial info, and take care of tasks like generating quotes or invoices automatically. In its FY26 update, Xero said it expanded AI collaborations with Anthropic and OpenAI, and noted that new GenAI features—rolled out over the last 18 months—have now drawn in 500,000 users.
The risk here is obvious. Gross margin slipped to 83.9% from 89.0%, while operating income dropped 13%. Xero blamed acquisition costs tied to Melio for dragging on results. Should U.S. payments momentum taper off or AI products miss the mark on driving paid adoption, those share repurchases won’t be enough to take the strain off margins. Xero flagged that it anticipates missing the “Rule of 40” — the industry standard combining revenue growth and profit margin — on a pro-forma basis until at least FY28.
Xero ruled out a dividend for FY26, making it clear the share buyback isn’t filling that role. The company positioned the A$550 million authorization as a move to counter dilution from restricted stock units it expects to vest between FY27 and FY29.
At this stage, investors saw only a partial rebound—Friday’s move clawed back some, but not the entirety, of Thursday’s losses. Xero’s handed shareholders a more compelling U.S. narrative, bumped up revenue guidance, and balanced out dilution. Now comes the question: can Melio push growth further without putting too much pressure on profit?
