By Stuart Condie

SYDNEY--Xero Ltd.'s first-half net profit increased sharply as the cloud accounting firm managed to sustain customer growth amid the coronavirus pandemic.

The Australia-listed, New Zealand-based firm on Thursday reported net profit for the six months through September of 34.5 million New Zealand dollars (US$23.8 million), compared with NZ$1.3 million a year earlier. Revenue was up 21% on-year to NZ$409.8 million.

Xero added 396,000 new subscribers since the end of fiscal 2020, when it reported a maiden first annual profit but warned the coronavirus would weigh on fiscal 2021. Its total subscriber base now stands at 2.45 million despite the rate of customer growth slowing from the second half of fiscal 2020.

Xero also it had lifted product development spend by 29% on-year to a record NZ$139.9 million in an effort to support customers through the pandemic, outpacing operating revenue growth of 21%. Offsetting that, it cut sales and marketing costs by 10% on-year.

Xero said some uncertainty was likely to remain, but that its focus on long-term growth, combined with a return to more normal market conditions, is expected to drive a return to positive sales and marketing cost growth. It did not say by when and did not provide full-year guidance.

The company again declined to pay a dividend.

Subscriber numbers grew in every market, while monthly recurring revenue churn was consistent on a year earlier at 1.11%, despite some volatility through the period.

"This result demonstrates the value our customers attribute to their Xero subscription and the underlying strength of Xero's business model," Chief Executive Steve Vamos said in a statement.

Annualized monthly recurring revenue rose to NZ$877.6 million, from NZ$820.6 million in March, when Xero had deferred a price rise for business edition customers outside of the U.K.

Xero added about 100,000 Australian subscriber numbers since March 31 for a total 1.0 million, up 21% on-year. U.K. subscribers lifted 19% on-year to 638,000, New Zealand subscribers grew by 13% to 414,000, North America subscribers increased by 17% to 251,000, and the rest-of-the-world by 37% to 136,000.

Of the 396,000 subscribers added in the 12 months through September, 168,000 were added in the first half of fiscal 2021, compared with 228,000 in the second half of fiscal 2020.

Xero's stock is 53% higher since the end of 2019, making it one of the local market's standout performers amid a pandemic that accelerated online adoption by locked-down consumers and businesses. The firm is the second-largest Australia-listed tech firm by market capitalization after buy-now-pay-later provider Afterpay Ltd., and its market capitalization of A$16.44 billion is larger than S&P/ASX 200 stalwarts James Hardie Industries PLC, Brambles Ltd. and Cochlear Ltd.

Morgan Stanley last month said the underlying trends supporting the business meant Xero remained its preferred large-cap ASX tech stock.

Write to Stuart Condie at stuart.condie@wsj.com

(END) Dow Jones Newswires

11-11-20 1757ET