Background: Xero is the cloud accounting software born in New Zealand in 2006. It went full cloud at a time when competitors were still selling CD-ROMs and telling people to “install updates manually.” Fast forward to today, and more than 4 million small business owners around the world rely on Xero.

What happened: Now, Xero has just dropped its half-year results, reporting after-tax profit up 42% to $135 million NZD. On top of this, the half-yearly revenue is up 20% to $1.2 billion NZD. But despite those shiny numbers, Xero’s share price still fell 9% on the news.

What else: Investors were spooked by Xero’s $700 million purchase of Melio, a six-year-old US payments startup that’s still unprofitable. On top of that, Xero’s North American revenue missed forecasts by more than 20%.

What's the key learning?

💡Big markets come with big opportunities… but also big expectations. For Xero, the US is the biggest prize they’ve got, which means every data point from that region carries extra weight.

💡When half-year North American revenue landed $20m NZD below expectations, investors naturally raised an eyebrow.

💡Melio is still burning cash, which means it’s likely to drag down Xero’s famously juicy margins for a while. In fact, Xero's"Rule of 40" (free cash flow + annual revenue growth rate) was 44.5% but with Melio included, it drops to 39.8%. So investors want reassurance that US momentum is building...not slowing.