XRO: Model Update

Research evidence excerpt

XRO: Model Update

Xero Limited

Target/Upside/Downside Scenarios Investment summary

Mission-Critical Software. Over 4m subscribers globally withXero Limited

SMEs paying ~$40/month on average for business-critical

220 125 Weeks 21DEC23 - 13MAY26 software. High product utility and relative low price translate

200 to high recurring revenue over 99% and low churn ~1%.

180 XRO's software fulfils increased mandatory obligations from

160 TARGETTARGET 155.00155.00

140 tax authorities in Australia, New Zealand and the UK.

100 Cloud First, SaaS First with Global Scalability Advantages. 80

CURRENTCURRENT 80.1380.13 XRO is the only global accounting software player built in the 60

40 cloud as an SaaS platform since inception for SMEs. These

15m attributes give XRO material global scalability advantages

10m

5m relative to key competitors that started life as desktop or

2024 2025 2026

D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M on-premises software packages. XRO is not saddled with the

XRO AU Rel. AUSTRALIAN ALL ORDINAIRES MA 40 weeks complexities of a hybrid solution or transitioning its core

Source: Bloomberg and RBC Capital Markets estimates for Target offerings to the cloud.

Valuation

Potential Catalysts: 1) subscriber net adds; 2) average revenueOur 12-month forward A$155.00/share price target is the

per user (ARPU) growth; 3) financial results in May (FY) andweighted average of our SOTP and DCF valuation. Our SOTP

Nov (1H); 4) AGM in August; 5) acquisitions; and 6) newbase case applies the global SaaS average to XRO's core

products and geographies.subscription business (7x EV/sales) and the global payments

average multiple to the Melio business (8x EV/GP), implying Potential Risks: 1) lower subscriber growth; 2) lower average$115/share.