How Xero’s Melio Deal and AI Push Are Powering 20% Revenue Growth
Xero Limited reported a robust first half of FY26 with 20% revenue growth and a 42% jump in net profit, driven by the strategic acquisition of Melio and expanded AI capabilities.
- 20% revenue growth to NZ$1.194 billion
- 42% increase in net profit to NZ$134.8 million
- Acquisition of US SMB bill pay platform Melio completed
- Subscriber base grows to 4.6 million with 15% ARPU increase
- AI-powered financial superagent JAX expanded and integrated
Strong Financial Performance Amid Strategic Expansion
Xero Limited (ASX, XRO) has delivered a compelling set of results for the first half of fiscal year 2026, underscoring its position as a leading global SaaS provider for small businesses. Revenues surged 20% year-on-year to NZ$1.194 billion, while net profit attributable to shareholders rose 42% to NZ$134.8 million. This performance was accompanied by a significant free cash flow generation of NZ$321 million, reflecting operational efficiency and disciplined capital allocation.
Melio Acquisition Bolsters US Market Presence
A major highlight of the period was the successful completion of Xero's acquisition of Melio, a prominent US small and medium business bill pay platform. This strategic move, finalized in October 2025, enhances Xero’s product suite in its largest international market by offering SMBs and their advisors streamlined accounts payable workflows and diverse payment options. The integration of Melio is expected to accelerate revenue growth and deepen customer engagement in the US, with plans to roll out Melio’s bill pay services to all US customers by December 2025.
AI Innovation Drives Product Velocity and Customer Value
Xero continues to invest heavily in artificial intelligence, expanding its AI financial superagent, JAX, which orchestrates multiple AI agents to deliver automated workflows, actionable insights, and enhanced customer experiences. The company showcased new AI-powered features at Xerocon Brisbane, including advanced analytics powered by Syft and a customizable homepage that offers personalized business insights. These innovations are designed to help small businesses automate routine tasks, improve compliance, and make smarter financial decisions.
Subscriber Growth and Revenue Expansion Across Markets
The company’s subscriber base grew by 404,000 over the past year to reach 4.6 million, with international markets accounting for a growing share of net additions. Average revenue per user (ARPU) increased 15%, driven by price adjustments and expanded financial services offerings. Xero’s 3x3 strategy; focusing on accounting, payroll, and payments across its three largest markets (Australia, UK, and US); continues to gain traction, supported by targeted go-to-market initiatives and enhanced partner tools.
Outlook and Strategic Priorities
Looking ahead, Xero remains confident in its FY26 outlook, expecting operating expenses to moderate in the second half of the year and continuing to prioritize capital discipline. The company’s FY28 aspirations include more than doubling group revenue and delivering strong Rule of 40 outcomes, leveraging the Melio acquisition and ongoing AI-driven innovation. Xero’s leadership emphasizes a customer-centric approach, aiming to make life better for small businesses and their advisors worldwide.
Bottom Line?
With Melio integrated and AI innovation accelerating, Xero is poised for sustained growth; but execution risks and integration challenges remain key watchpoints.
Questions in the middle?
- How smoothly will Xero integrate Melio’s operations and technology?
- What impact will rising operating expenses have on long-term profitability?
- How will AI-driven features like JAX influence customer retention and acquisition?
