Zuora (NYSE:ZUO) Exceeds Q1 Expectations But Quarterly Guidance Underwhelms

Kayode Omotosho /
2022/05/25 4:23 pm EDT
Add to Watchlist

Subscription management platform Zuora (NYSE:ZUO) reported Q1 FY2023 results beating Wall St's expectations, with revenue up 16% year on year to $93.1 million. Guidance for the full year also exceeded estimates, however the guidance for the next quarter was less impressive, coming in at $97.5 million, 1.96% below analyst estimates. Zuora made a GAAP loss of $23.1 million, down on its loss of $17.6 million, in the same quarter last year.

Is now the time to buy Zuora? Access our full analysis of the earnings results here, it's free.

Zuora (ZUO) Q1 FY2023 Highlights:

  • Revenue: $93.1 million (1.03% beat)
  • EPS (non-GAAP): -$0.03 vs analyst estimates of -$0.01
  • Revenue guidance for Q2 2023 is $97.5 million at the midpoint, below analyst estimates of $99.4 million
  • The company reconfirmed revenue guidance for the full year, at $404 million at the midpoint
  • Free cash flow of $3.72 million, down 51.2% from previous quarter
  • Net Revenue Retention Rate: 110%, in line with previous quarter
  • Gross Margin (GAAP): 61.1%, up from 59.2% same quarter last year

“Our first quarter continued to demonstrate the resilience of the recurring revenue model, and our unique ability to provide a complete quote to cash and revenue recognition process at scale. We exceeded guidance for total revenue and subscription revenue. Long-term trends continue to support the broadening Subscription Economy and we delivered another quarter of consistent execution,” said Tien Tzuo, founder and CEO of Zuora.

Founded in 2007, Zuora (NYSE:ZUO) offers software as a service platform that allows companies to bill and accept payments for recurring subscription products.

Consumers want the ability to make payments whenever and wherever they prefer – and to do so without having to worry about fraud or other security threats. However, building payments infrastructure from scratch is extremely resource-intensive for engineering teams. That drives demand for payments platforms that are easy to integrate into consumer applications and websites.

Sales Growth

As you can see below, Zuora's revenue growth has been mediocre over the last year, growing from quarterly revenue of $80.3 million, to $93.1 million.

Zuora Total Revenue

This quarter, Zuora's quarterly revenue was once again up 16% year on year. We can see that the company increased revenue by $2.5 million quarter on quarter. That's a solid improvement on the $1.46 million increase in Q4 2022, so shareholders should appreciate the acceleration of growth.

Guidance for the next quarter indicates Zuora is expecting revenue to grow 12.7% year on year to $97.5 million, slowing down from the 15.3% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 16% over the next twelve months.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.

Large Customers Growth

You can see below that at the end of the quarter Zuora reported 746 enterprise customers paying more than $100,000 annually, a decrease of one on last quarter. We have no doubt shareholders would like to see the company regain its sales momentum.

Zuora customers paying more than $100,000 annually

Key Takeaways from Zuora's Q1 Results

With a market capitalization of $1.17 billion Zuora is among smaller companies, but its more than $452.5 million in cash and positive free cash flow over the last twelve months put it in a very strong position to invest in growth.

Zuora topped analysts’ revenue expectations this quarter, even if just narrowly. That feature of these results really stood out as a positive. On the other hand, it was unfortunate to see that the revenue guidance for the next quarter missed analysts' expectations and there was a slowdown in new contract wins. Overall, this quarter's results were mixed. The company is up 1.04% on the results and currently trades at $9.63 per share.

Zuora may have had a tough quarter, but does that actually create an opportunity to invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 70% year on year and best-in-class SaaS metrics it should definitely be on your radar.

The author has no position in any of the stocks mentioned.