Xero slashes up to 800 jobs

ASX-listed accounting platform Xero is the latest tech company to put a scythe through its workforce, cutting up to 800 roles globally to improve its bottom line.

The New Zealand software company’s cuts come a day after Nasdaq-listed Atlassian announced it was cutting 500 positions.

Xero (ASX: XRO) employs around 5000 people, meaning around 15% of the workforce will go.

The company is also dumping Sydney invoice lending fintech Waddle, which it acquired in August 2020 for A$31 million. Xero expects to incur a write down of A$30-40 million in FY23 as a result of this decision.

New CEO Sukhinder Singh Cassidy, who stepped into the role five weeks ago, said the decisions will streamline operations, realign the business and better balance of growth and profitability.

“We have made strong progress in executing our strategy. However as we aspire to build a higher performing global SaaS company and to enable Xeroʼs next phase of growth and drive better customer outcomes, we need to streamline and simplify our organisation,” she said.

“These changes, and our decision to reinvest in key strategic areas, will adjust our operating cost base as we balance growth and profitability, while taking a robust approach to capital allocation that supports long term value creation.”

In a statement to the ASX, the company said it will cut 700-800 roles to improve operating profitability as its operating expense to revenue ratio is expected to reduce significantly in FY24.

The job cuts are expected to cost the business $25-35 million, with most of the payments occurring in FY24.

Management is targeting an operating expense to revenue ratio in next financial year of around 75%. The company will provide guidance on its FY24 outlook when it delivers its FY23 annual report in May.

Releasing its half-yearly results to September 30, 2022, in November, Xero posted revenue growth of 30% to NZ$658.5 million (A$603m), with the company’s net loss is up around 270% from NZ$5.59m 12 months ago, to NZ$16.1m (A$14.6m). EBITDA was up 11% to NZ$108.6 million.

The result was mixed compared to analyst expectations.

Current guidance for FY23 is that total operating expenses, including acquisition integration costs, as a percentage of operating revenue for FY23 is expected to sit at the lower end of a range 80-85%.

Singh Cassidy said the cuts were “difficult but necessary steps… carefully balancing the interests of all our stakeholders”.

“We don’t take these decisions lightly and we recognise today is a very hard day for our people,” she said.

Xero shares jumped more than 10% to above $87 in opening trade on Thursday morning.