Zuora (NYSE:ZUO) Q2: Beats On Revenue But Full Year Guidance Underwhelms

Jabin Bastian /
2022/08/24 4:24 pm EDT

Subscription management platform Zuora (NYSE:ZUO) beat analyst expectations in Q2 FY2023 quarter, with revenue up 14.2% year on year to $98.7 million. However, guidance for the next quarter was less impressive, coming in at $100.5 million at the midpoint, being 3.45% below analyst estimates. Zuora made a GAAP loss of $29.9 million, down on its loss of $23.6 million, in the same quarter last year.

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Zuora (ZUO) Q2 FY2023 Highlights:

  • Revenue: $98.7 million vs analyst estimates of $97.5 million (1.26% beat)
  • EPS (non-GAAP): -$0.04 vs analyst estimates of -$0.05
  • Revenue guidance for Q3 2023 is $100.5 million at the midpoint, below analyst estimates of $104.1 million
  • The company dropped revenue guidance for the full year, from $404 million to $397 million at the midpoint, a 1.73% decrease
  • Free cash flow was negative $7.62 million, down from positive free cash flow of $3.72 million in previous quarter
  • Net Revenue Retention Rate: 111%, in line with previous quarter
  • Gross Margin (GAAP): 60.8%, up from 58.3% same quarter last year

“It was another solid quarter where we exceeded guidance across all of our key financial metrics. We are benefiting from our incredible customer base, our land and expand strategy, as well as our resilient recurring revenue business model, and today’s acquisition of Zephr only expands our suite, giving us further opportunities to grow,” 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.

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Sales Growth

As you can see below, Zuora's revenue growth has been mediocre over the last year, growing from quarterly revenue of $86.4 million, to $98.7 million.

Zuora Total Revenue

This quarter, Zuora's quarterly revenue was once again up 14.2% year on year. We can see that the company increased revenue by $5.57 million quarter on quarter. That's a solid improvement on the $2.5 million increase in Q1 2023, so shareholders should appreciate the re-acceleration of growth.

Guidance for the next quarter indicates Zuora is expecting revenue to grow 12.6% year on year to $100.5 million, slowing down from the 15.5% 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 15.6% over the next twelve months.

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Large Customers Growth

You can see below that at the end of the quarter Zuora reported 745 enterprise customers paying more than $100,000 annually, a decrease of 1 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 Q2 Results

With a market capitalization of $1.12 billion Zuora is among smaller companies, but its more than $448.6 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 Zuora's revenue guidance for the full year missed analysts' expectations. Overall, this quarter's results could have been better. The company is flat on the results and currently trades at $8.95 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.

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