The number puts Xero at more than double the size of its closest local rival MYOB, which said last year it had 550,000 subscribers with a target of reaching one million subscribers by 2020.
Xero again made a modest profit after tax of $1.3 million but Mr Vamos said Xero’s focus was on “reinvesting for growth”.
We are not carried away with where we’ve got to so far because there’s so much to do.
Xero chief Steve Vamos
He pointed to the 20 per cent growth in Xero’s annualised monthly recurring revenue to $746.1 million.
“It’s basically our exit run rate in a month times 12,” he said. “It gives you a baseline indicator of the go forward. For me these are the highlights.”
Mr Vamos said Xero still had room for significant growth with cloud accounting penetration rates sitting at under 20 per cent in most markets compared to 50 per cent plus in Australia and New Zealand.
“We’re still only just in a sense in the early stages of capitalising on the opportunity,” he said. “We are not carried away with where we’ve got to so far because there’s so much to do.”
Andrew Mitchell, fund manager at Ophir who invests in Xero, said the subscriber growth at Xero in the UK and Australia was beating market expectations.
“UK subscribers growth at 51 per cent was a standout, especially given cloud accounting in the UK is still underpenetrated at 28 per cent share,” Mr Mitchell said. “We still see a long run way for growth in the cloud market.”
Last month Xero brought on its largest single client, accounting firm RSM and Mr Vamos said this was “a great indicator” for Xero.
“When you look at the growth of Xero, [it] was fuelled a lot by the smaller, innovative accounting practices that embrace cloud,” he said. “Now what we’re seeing is a trend towards the larger practices and enterprises who, by the way, for some time now have been customers of ours and have been building their capability around cloud accounting, really embracing this.”
Mr Vamos said Xero had a three-part strategy for growth around building, partnering and acquisition.
Its recent partnerships include in payments with payments platform Stripe and bank NAB and acquisitions including HubDoc and Instafile.
Mr Vamos said government policy requiring businesses to digitise accounting systems also boosted Xero’s growth.
“The initiatives around single touch payroll in Australia, payday filing in New Zealand, and making tax digital in the UK, in my view is a significant trend that is going to continue for many, many years to come,” he said. “I don’t think there’s any question that if you look forward into the future, governments and business will be connected far more digitally than ever before on an increasing basis. Those trends definitely help our business grow.”
Xero’s shares opened at $69.99 and were trading at $73.43 by 1.45pm AEDT, up 8.7 per cent.
Cara is the small business editor for The Age and The Sydney Morning Herald based in Melbourne