Josh Gilbert, market analyst at eToro Group Ltd, shares his three things to watch in Australia in the coming days.
Inflation continues to apply pressure
Westpac Consumer Sentiment and NAB Business Confidence are released on Tuesday, providing very contrasting sides of the same coin.
Consumer sentiment has continued to decline over the last few months, with Westpac’s index sliding to a six-month low of 92.1 in October. With any hopes of additional rate cuts this year now buried, many consumers will be going into the Christmas blitz with a tight budget.
Businesses, on the other hand, have maintained steady optimism through the second half of this year, and we’ll likely see hopes of a strong Black Friday and Christmas spending season reflected in the numbers this month.
Unemployment figures, released on Thursday, will likely tell of a tough jobs market after September figures came in above forecasts. For now, the unemployment rate looks set to hold around 4.4%, but a sharp increase will have the board worried.
Xero
When Xero, the “Netflix of accounting software", posts earnings on Thursday, we’ll likely see a good result built on the momentum from a strong year prior and its strong foothold as a top-billed provider across the SMB space.
Xero had a strong FY25, with revenue up 23% and a particularly strong performance in Australia. Its recent inclusion in the ASX200 has only bolstered its standing as THE company to watch for retail investors seeking SaaS exposure. It recently completed the acquisition of Melio in the United States, aiming for inorganic growth. While investments like this can crimp margins in the short term, it reflects Zero’s ambitions of reflecting its success in ANZ overseas.
Xero remains confident in its long-term growth trajectory by targeting both ARPU expansion and deeper product adoption. Management continues to execute on its FY25–27 strategy with a focus on profitable growth. After years of heavy investment, the company is now balancing growth with improving margins, evidenced by a 75% surge in EBITDA in FY24 and solid free cash flow.
On the ASX, where banking and mining giants typically dominate, Xero stands out as a differentiator, and I expect this round of earnings will only affirm that SaaS can shine in the local market. All signs point to Xero delivering another strong result, reinforcing the market’s optimism about its profitable growth game plan.
Tencent
Tencent’s earnings will also be released on Thursday. Globally, there’s chatter about a potential AI bubble, but the Chinese tech conglomerate has been keen to showcase real progress from its AI investments. Tencent dramatically ramped up capital spending to build AI and cloud infrastructure. It has launched a ChatGPT-like assistant called Yuanbao. Early signs are encouraging. After Tencent integrated cutting-edge AI into WeChat, Yuanbao became the top-downloaded iPhone app in China this March, with daily active users for Tencent’s AI features jumping 20-fold following that rollout.
Part of the issue is China’s lower demand for AI cloud services compared to the US, meaning the revenue payoff from all those GPUs and data centres might lag for now. Essentially, Tencent is spending big on AI to stay in the race, but investors haven’t seen a big top-line boost from it yet.
Tencent was also among the ‘top 10 fallers’ on eToro in Q3 in Australia, with a 7% decrease in Aussie holders QoQ. Sprinkle in complicated, broader economic conditions in China, and this set of earnings will be a true test of the stock’s mettle. Any suggestion that investment in AI is outpacing broader business performance will be bad news for markets. However, if Tencent can demonstrate solid gaming revenue, stable ad and fintech growth, and manageable spending, it will go a long way to reassure the market. The market won’t worry about its spending as long as it doesn’t derail profitability.