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Zuora's (NYSE:ZUO) Posts Q3 Sales In Line With Estimates But Quarterly Guidance Underwhelms


Petr Huřťák /
2022/12/06 4:28 pm EST
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Subscription management platform Zuora (NYSE:ZUO) reported results in line with analyst expectations in Q3 FY2023 quarter, with revenue up 13.2% year on year to $101 million. However, guidance for the next quarter was less impressive, coming in at $100.5 million at the midpoint, being 2.54% below analyst estimates. Zuora made a GAAP loss of $37 million, down on its loss of $22.8 million, in the same quarter last year.

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Zuora (ZUO) Q3 FY2023 Highlights:

  • Revenue: $101 million vs analyst estimates of $100.2 million (0.85% beat)
  • EPS (non-GAAP): -$0.02 vs analyst estimates of -$0.06
  • Revenue guidance for Q4 2023 is $100.5 million at the midpoint, below analyst estimates of $103.1 million
  • Free cash flow was negative $7.24 million, compared to negative free cash flow of $7.62 million in previous quarter
  • Net Revenue Retention Rate: 109%, in line with previous quarter
  • Customers: 770 customers paying more than $100,000 annually
  • Gross Margin (GAAP): 60.1%, in line with same quarter last year

“We delivered third quarter results at the high end of guidance as companies across industries continue to lean into recurring revenue models. At the same time we’re making adjustments to our business to deliver meaningful profitability improvement in fiscal 2024,” 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 two years, growing from quarterly revenue of $77.2 million in Q3 FY2021, to $101 million.

Zuora Total Revenue

This quarter, Zuora's quarterly revenue was once again up 13.2% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $2.29 million in Q3, compared to $5.57 million in Q2 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 10.8% year on year to $100.5 million, slowing down from the 14.3% 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 13.1% 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 770 enterprise customers paying more than $100,000 annually, an increase of 25 on last quarter. That is 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 $953.5 million Zuora is among smaller companies, but its more than $182.2 million in cash and the fact it is operating close to free cash flow break-even put it in a robust financial position to invest in growth.

We were very impressed how strongly Zuora accelerated the rate of new contract wins this quarter. 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 revenue growth is slower these days. Overall, it seems to us that this was a complicated quarter for Zuora. The company is up 1.11% on the results and currently trades at $7.27 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.