Xero cuts staff as profits trump growth mantra

When Xero announced in November that it would appoint a Silicon Valley native/Google alumni/serial entrepreneur — Sukhinder Singh Cassidy — to head its executive rank, investors braced themselves for higher growth investments at the expense of near-term profits.

Xero’s market cap fell by $1 billion, but that was mainly due to investors being disappointed with the earnings. For the six months ended September 2022, Xero’s operations declined 62 percent from the same period last year and posted a net loss of just over $16 million.

But just weeks after putting her feet under the desk, Singh Cassidy has shown herself to be a pragmatist who doesn’t just focus on revenue growth, but on profit. Her predecessor, Steve Vamos, was a pro-growth advocate who favored cash reinvestment in the company over shorter-term shareholder returns.

But after the tech sector’s horror year on the 2022 calendar, in which the Nasdaq index (comprising most of the big global tech companies) plummeted by more than a third, disruptor companies realized that profits and strong balance sheets matter. Simply relying on revenue growth won’t do for investors.

A forward-looking study by Macquarie analysts earlier this week wondered if Xero would take a less passionate stance on growth over profits — suggesting this turnaround was possible under Singh Cassidy. It hinted that Xero could pull back on its decades-long and costly attempts to attract customers in the US.

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Though Xero didn’t mention it on Thursday, it did announce plans to exit cloud-based lending platform Waddle, which it bought for around $30 million a few years ago, and the writedowns associated with that misstep will add another $30 million -dollar cost to 40 million dollars.

The fruit is low hanging for Xero, and having set the tone, the real challenge for Singh Cassidy will be to show the market that she can follow the narrow path of disciplined growth.

Investors want the strong sales growth to continue. To say that would rob Xero of its reputation in the growth stock firmament. But a little profit would be nice too.