What Happened:
Shares of subscription management platform Zuora (NYSE:ZUO) fell 9.5% in the morning session after 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.
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What is the market telling us:
Zuora's shares are very volatile and over the last year have had 28 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 three months ago, when the stock gained 7.64% on the news that the company reported first-quarter revenue and earnings per share that surpassed analysts' expectations. There was a significant turnaround in free cash flow, with the company achieving positive results, which is a notable improvement compared to the increasing cash burn experienced in the previous three quarters. The company provided favorable guidance for the next quarter, surpassing consensus estimates for revenue.
Additionally, the full-year revenue guidance was in line with expectations. The profitability guidance was also encouraging, as the projected earnings per share for both the next quarter and the full year were roughly in line with market expectations.
Zuora is up 36.5% since the beginning of the year, but at $8.88 per share it is still trading 24.8% 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 $265.82.
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