Shares of subscription management platform Zuora (NYSE:ZUO) jumped 6.7% in the morning session after Goldman Sachs analyst Adam Hotchkiss upgraded the stock's rating from Neutral to Buy and raised the price target from $10 to $12. The new price target represents a potential 30% upside from where shares traded when the upgrade was announced. After the initial pop the shares cooled down to $9.16, up 3.6% from previous close.
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What is the market telling us:
Zuora's shares are quite volatile and over the last year have had 22 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 5 months ago, when the stock dropped 9.5% on the news that the company reported second-quarter revenue that narrowly missed Wall Street's estimates. On the other hand, earnings per share beat and gross margin improved. Looking ahead, next quarter's revenue guidance missed Wall Street's estimates. Similarly, full-year revenue guidance was lowered and came in below expectations. Investors should note that this drop stems from lower-than-expected professional services revenue, which is a lower margin than the company's subscription revenue. Thus, Zuora is still raising its adjusted operating income and EPS guidance for the full year. Overall, the market was likely looking for stronger topline growth, an area in which Zuora did not meet expectations.
Zuora is up 4.8% since the beginning of the year, but at $9.16 per share it is still trading 22.4% below its 52-week high of $11.81 from June 2023. Investors who bought $1,000 worth of Zuora's shares 5 years ago would now be looking at an investment worth $448.85.
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