Xero Limited (ASX: XRO) has outlined its AI and US growth strategy, targeting dual expansion through artificial intelligence monetisation and accelerated payments integration following the Melio acquisition. The company confirmed Melio is expected to reach Adjusted-EBITDA breakeven on a run-rate basis in H2 FY28, while reaffirming its aspiration to more than double FY25 group revenue of NZ$2,103 million by FY28.
Xero’s AI Strategy Creates Value for Small Businesses
Xero is positioning itself to capture total addressable market expansion by evolving from a system of record into a system of action and decision making for small and medium-sized businesses. This transition is powered by multiple AI agents operating under JAX, designed to automate tasks, surface insights, and enable data-driven decisions within the accounting platform.
For investors, this represents a structural shift in how SaaS platforms create value. Rather than simply storing financial data, Xero’s AI capabilities actively process information to recommend actions, predict outcomes, and automate workflows. This positions the platform as mission-critical infrastructure rather than passive software.
The company’s AI strategy rests on four foundational advantages that create defensible competitive positioning:
- Data: A powerful, deep system of record with first and third-party data
- Platform: Xero supports the core Jobs to be Done for small business in one place
- Scale and domain expertise: Deep vertical expertise and breadth across the core Jobs to be Done for small business, delivering an AI-enabled platform experience for customers
- GTM engine: A strong and established partnership with accountants and bookkeepers supporting its go-to-market engine across 4.6 million subscribers
These advantages support four AI value pillars already delivering measurable customer outcomes:
- Get help: Over 97% of help sessions resolved without a ticket using self-serve content, which is partly AI-enabled
- Get time back: Approximately 22 hours saved by customers each month using bank feeds and automated actions
- Manage their business smarter: Approximately 61% increase in JAX messages per user in the last three months
- Unlock new business growth: More than 12% of eligible subscribers that have used AI insights
Adoption metrics demonstrate product-market fit across the customer base. More than two million subscribers are using Xero’s full AI features, with over 300,000 using newer GenAI features announced at Xerocon Brisbane. The 61% quarterly increase in JAX engagement per user signals growing reliance on AI-powered workflows.
In FY27, Xero will focus on driving usage and adoption of AI, deepening AI value in its products, and monetising new AI features. The company has established three principles for AI monetisation: simplicity, encouraging adoption, and considering future usage evolution. This phased approach prioritises customer adoption before aggressive pricing, laying groundwork for sustained margin expansion.
Melio Integration Strengthens US Market Position
The Melio acquisition, completed in October 2025, advances Xero’s Win the 3×3 strategy by uniting accounting with payments on one platform. This integration diversifies Xero’s US revenue model beyond subscription fees to capture a greater share of small business bill payment revenue.
Integration progress since completion includes successfully embedding Melio’s basic bill payments functionality into the Xero platform, unifying go-to-market teams, and consolidating US offices with shared services migration underway to realise operational synergies. These execution milestones demonstrate management’s ability to integrate a material acquisition while maintaining operational momentum.
The combined Xero-Melio proposition introduces new revenue streams and metric disclosures that provide investors with enhanced visibility into US performance:
| Metric Category | What It Measures | Why It Matters |
|---|---|---|
| Total Payment Volume (TPV) | Payments processed across Xero and Melio | Scale indicator |
| Gross Take Rate | Revenue per dollar processed | Monetisation efficiency |
| US Direct Customer ARPU | Average revenue per US customer | Growth trajectory |
| US Gross Dollar Profit | Absolute profit contribution | Investment capacity |
These metrics will enable investors to track adoption of payments functionality, revenue per transaction, customer lifetime value expansion, and absolute profit generation from the US market. The disclosure framework aligns with Xero’s commitment to transparency on integration execution.
CEO Perspective on Strategic Positioning
CEO Commentary
“We are deeply focused on capturing the global AI and US accounting plus payments TAM. Xero is well positioned to shepherd SMBs into the AI era and take advantage of this technology. We are already a trusted system of record and are now orchestrating multiple agents to evolve into the key system of action and decision making for our customers. Combined with our deep domain knowledge, unique data platform and go-to-market strengths, we have a clear AI strategy that supports our long-term growth opportunity,” said Sukhinder Singh Cassidy, CEO.
Financial Outlook and FY28 Aspirations Reaffirmed
Xero provided concrete guidance on Melio profitability and maintained existing FY26 operating expense guidance, offering investors clearer visibility on the path to sustained profitability. Key financial guidance includes:
- Melio expected to reach Adjusted-EBITDA breakeven on run-rate basis in H2 FY28
- FY26 operating expenses to revenue expected around 70.5%
- H2 FY26 OPEX ratio expected lower than H1 FY26
- Non-recurring remuneration impact of approximately $45 million in FY26
- Anticipated FY28 revenue synergies of approximately US$70 million
- Aspiration to deliver greater than Rule of 40 outcomes in FY28
The Melio breakeven timeline provides a concrete milestone for US profitability, addressing investor concerns about acquisition dilution. Run-rate breakeven refers to at least one month of positive Adjusted-EBITDA contribution during H2 FY28, indicating the business will have achieved sustainable profitability exiting the period.
Xero reaffirmed its FY28 aspiration that the combined business will more than double its FY25 group revenue in FY28, excluding anticipated revenue synergies. With FY25 revenue of NZ$2,103 million, this implies FY28 revenue exceeding NZ$4,200 million before synergies. Including anticipated synergies of approximately US$70 million, the target becomes more achievable.
The company expects to deliver greater than Rule of 40 outcomes for the group in FY28, combining revenue growth rate and Adjusted-EBITDA margin. In the interim period prior to FY28, Xero expects to deliver below Rule of 40 outcomes on a pro forma basis, reflecting integration investments and Melio’s path to profitability.
What Investors Should Watch Next
At its FY26 results announcement on 14 May 2026, Xero will transition to providing forward guidance on an Adjusted-EBITDA basis, replacing the existing operating expense ratio framework. The company will also provide a one-off FY27 revenue growth range guide to help bridge to its existing FY28 revenue aspiration.
This transition improves forward visibility by focusing on absolute profitability rather than expense ratios. The FY27 revenue guidance will enable investors to assess whether Xero remains on track to achieve its FY28 doubling target.
The May 2026 update will include further performance metrics on Melio integration and US business performance, including the newly disclosed TPV, gross take rate, US ARPU, and US gross dollar profit metrics. These disclosures will provide the first quantitative assessment of post-acquisition execution.
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