Zuora (NYSE:ZUO) Exceeds Q4 Expectations

Anthony Lee /
2023/03/01 4:17 pm EST

Subscription management platform Zuora (NYSE:ZUO) reported results ahead of analyst expectations in the Q4 FY2023 quarter, with revenue up 13.6% year on year to $103 million. The company expects that next quarter's revenue would be around $102 million, which is the midpoint of the guidance range. That was roughly in line with analyst expectations. Zuora made a GAAP loss of $31.9 million, improving on its loss of $35.2 million, in the same quarter last year.

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Zuora (ZUO) Q4 FY2023 Highlights:

  • Revenue: $103 million vs analyst estimates of $100.2 million (2.8% beat)
  • EPS: -$0.24 vs analyst estimates of -$0.28 (13.5% beat)
  • Revenue guidance for Q1 2024 is $102 million at the midpoint, below analyst estimates of $102.7 million
  • Management's revenue guidance for upcoming financial year 2024 is $434 million at the midpoint, in line with analyst expectations and predicting 9.57% growth (vs 14.3% in FY2023)
  • Free cash flow was negative $20.1 million, compared to negative free cash flow of $7.25 million in previous quarter
  • Net Revenue Retention Rate: 108%, in line with previous quarter
  • Customers: 773 customers paying more than $100,000 annually
  • Gross Margin (GAAP): 63.1%, up from 60.6% same quarter last year

“Q4 was another solid quarter where we came in ahead of guidance across our operating metrics, including revenue, free cash flow, net dollar retention and non-GAAP operating income,” said Tien Tzuo, founder and CEO at 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.

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Sales Growth

As you can see below, Zuora's revenue growth has been mediocre over the last two years, growing from quarterly revenue of $79.3 million in Q4 FY2021, to $103 million.

Zuora Total Revenue

This quarter, Zuora's quarterly revenue was once again up 13.6% year on year. But the growth did slow down a little compared to last quarter, as Zuora increased revenue by $1.97 million in Q4, compared to $2.3 million revenue add in Q3 2023. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.

Guidance for the next quarter indicates Zuora is expecting revenue to grow 9.44% year on year to $102 million, slowing down from the 16% year-over-year increase in revenue the company had recorded in the same quarter last year. For the upcoming financial year management expects revenue to be $434 million at the midpoint, growing 9.57% compared to 14.2% increase in FY2023.

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Large Customers Growth

You can see below that at the end of the quarter Zuora reported 773 enterprise customers paying more than $100,000 annually, an increase of 3 on last quarter. That is a bit less contract wins than last quarter and also quite a bit below what we have typically seen over the past couple of quarters, suggesting that the sales momentum with large customers is slowing down.

Zuora customers paying more than $100,000 annually

Key Takeaways from Zuora's Q4 Results

Since it has still been burning cash over the last twelve months it is worth keeping an eye on Zuora’s balance sheet, but we note that with a market capitalization of $1.13 billion and more than $386.2 million in cash, the company has the capacity to continue to prioritise growth over profitability.

We enjoyed seeing Zuora’s improve their gross margin materially this quarter. And we were also excited to see that it outperformed analysts' revenue expectations. On the other hand, it was unfortunate to see the slowdown in new contract wins and the revenue guidance for next year indicates quite a significant slowdown in growth. Overall, this quarter's results were mixed. The company is flat on the results and currently trades at $8.2 per share.

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