Zuora (NYSE:ZUO) Posts Better-Than-Expected Sales In Q3, Next Quarter Sales Guidance Is Optimistic

Jabin Bastian /
2021/12/01 4:24 pm EST
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Subscription management platform Zuora (NYSE:ZUO) announced better-than-expected results in the Q3 FY2022 quarter, with revenue up 15.5% year on year to $89.2 million. Guidance for next quarter's revenue was $90.5 million at the midpoint, 2.88% above the average of analyst estimates. Zuora made a GAAP loss of $22.8 million, down on its loss of $16.7 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) Q3 FY2022 Highlights:

  • Revenue: $89.2 million vs analyst estimates of $86.5 million (3.1% beat)
  • EPS (non-GAAP): -$0.02 vs analyst estimates of -$0.03
  • Revenue guidance for Q4 2022 is $90.5 million at the midpoint, above analyst estimates of $87.9 million
  • Free cash flow was negative $1.65 million, compared to negative free cash flow of $4.35 million in previous quarter
  • Net Revenue Retention Rate: 110%, in line with previous quarter
  • Customers: 720 customers paying more than $100,000 annually
  • Gross Margin (GAAP): 59.9%, up from 56.9% same quarter last year

“Q3 was another solid quarter. We continued to deliver strong performance, exceeding our guidance for operating metrics including total revenue, subscription revenue, and non-GAAP loss from operations. It was also the highest upsell quarter in Zuora’s history. Based on our overall results, our dollar-based retention rate, and ARR growth, we are confident in our strategy and believe our opportunity in the Subscription Economy continues to expand,” 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.

The subscription revenue model benefits both customers and the companies, making products available for low upfront investment and generating predictable revenue stream. Subscription products are on the rise, and so is the demand for billing and payment platforms to manage them.

Sales Growth

As you can see below, Zuora's revenue growth has been measured over the last year, growing from quarterly revenue of $77.2 million, to $89.2 million.

Zuora Total Revenue

This quarter, Zuora's quarterly revenue was once again up 15.5% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $2.74 million in Q3, compared to $6.15 million in Q2 2022. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.

Analysts covering the company are expecting the revenues to grow 11.9% over the next twelve months, although estimates are likely to change post earnings.

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Large Customers Growth

You can see below that at the end of the quarter Zuora reported 720 enterprise customers paying more than $100,000 annually, an increase of 26 on last quarter. That is quite a bit more contract wins than last quarter and quite a bit above what we have typically seen lately, demonstrating that the business itself has good sales momentum. We've no doubt shareholders will take this as an indication that the company's go-to-market strategy is working very well.

Zuora customers paying more than $100,000 annually

Key Takeaways from Zuora's Q3 Results

With a market capitalization of $2.46 billion Zuora is among smaller companies, but its more than $203.3 million in cash and positive free cash flow over the last twelve months put it in a very strong position to invest in growth.

We were very impressed how strongly Zuora accelerated the rate of new contract wins this quarter. And we were also glad that the revenue guidance for the next quarter exceeded analysts' expectations. On the other hand, revenue growth is overall a still bit slower these days. Overall, we think this was a really good quarter, that should leave shareholders feeling very positive. The company is up 3.03% on the results and currently trades at $19 per share.

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