The ASX-listed Xero is registered in Wellington and reports its financials in New Zealand currency.
Its shares were down 7.67% to A$74.70 in early morning trading.
Subscribers increased 7% year on-year to 2.75 million customers with a net 186,000 additions.
While fears of competition from artificial intelligence (AI) have dominated the software company valuation narrative, in Xero’s case, its stock has come under pressure since mid-2025, when it announced a plan to acquire the 87,000-customer, US-Israeli bill payments firm Melio in a deal worth up to US$3b with earnouts.
Xero shares since the cloud accounting firm shifted from an NZX/ASX dual listing to ASX-only in February 2018.
Xero was trading at an all-time high of A$193.77 immediately before the Melio deal was announced.
It closed yesterday at A$81.00.
Xero’s recent months have revolved around huge software development efforts: one to integrate Melio into its core product, the other to integrate technology from new partner Anthropic, the maker of Claude, to boost Xero’s previously in-house-only AI assistant, Jax (for Just Ask Xero). The Claude integration went live earlier this week.
Xero earnings came after twin controversies for the company.
The firm has opened an investigation into alleged sexual misconduct by its former chief executive Rod Drury.
It has also been grappling with fallout from a multi-day outage.
Chief executive Sukhinder Singh Cassidy has apologised for the outages and said they were unacceptable.
Yesterday, customers were offered credits.
Earlier, Morningstar analyst Roy Van Keulen told the Herald the AI threat to Xero, and other software as a service (SaaS firms), was overblown.
Keulen did, however, think the Melio acquisition was a mistake. He was unimpressed by a Xero preview for analysts of Melio’s integration into Xero’s software. The project had occupied a small army of Xero developers.
He saw it as Xero’s latest attempt to crack the US market, where Intuit remained entrenched. There was an opportunity cost as it distracted from easier growth targets, including expansion in the UK.
Xero’s strongest growth in the year to March was in the UK, with 166,000 net additions, followed by the US (including Melio customers) at 58,000. Without the Melio customers, Xero would have slipped back slightly in North America.
New Zealand had “lower growth compared to other regions due to deep market penetration”, a Xero investor presentation said.
New Zealand customers increased by 3% to 650,000 as local revenue, fuelled by price increases, rose 10% to $244m.
While he did not see free or low-cost AI tools, or “vibe-coded” competitors knocking over Xero, Morningstar’s Van Keulen did say the artificial intelligence threat had exhausted its capacity for further price rises.
Despite his qualms about Melio, going into earnings he had Xero at a fair valuation of A$100.
Chris Keall is an Auckland-based member of the Herald’s business team. He joined the Herald in 2018 and is the technology editor and a senior business writer.