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Investing.com - RBC Capital downgraded Xero Limited (ASX:XRO) from Outperform to Sector Perform on Wednesday, while reducing its price target to AUD187.00 from AUD230.00.
The downgrade comes amid reports that JPMorgan (NYSE:JPM) is proposing data and access fees for fintech payments players in the United States, which RBC Capital views as potentially negative for Xero and Melio.
RBC Capital estimates that if JPMorgan implements these fees, Xero’s gross profit and EBITDA could be impacted by up to 1% and 5% respectively. The impact could be more severe if other banks adopt similar "pay-to-play" strategies.
In a worst-case scenario where multiple banks follow JPMorgan’s lead, RBC Capital projects Xero’s gross profit could decrease by up to 7% and EBITDA by up to 27%.
The analyst firm applied a lower multiple to Xero’s valuation, citing increased business complexity and uncertainty regarding potential US banking fees, though it made no changes to its earnings estimates.
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