UPDATED 19:45 EDT / DECEMBER 03 2020

CLOUD

Stock of cloud subscription firm Zuora jumps on earnings and revenue beat

Shares of Zuora Inc. rose today after the cloud subscription services company posted third-quarter financial results that topped Wall Street’s expectations.

The company reported a loss before certain costs such as stock compensation of a penny a share on revenue of $77.2 million, up 8% from the same quarter last year. Analysts had modeled a wider loss of five cents per share on revenue of $74 million.

Zuora also offered strong guidance for the next three-month period. It’s expecting revenue of $75 million to $77 million in the fourth quarter. Wall Street had forecast revenue of $74.3 million.

Zuora sells a software-as-a-service offering that’s used to automate businesses’ subscription order-to-cash operations in real time. In other words, what it does is help companies transition to subscription billing and then manage those payments.

It’s proving to be quite a popular service with many companies today. Zuora Chief Executive Tien Tzuo  (pictured) said the company was seeing much stronger demand for subscription business models.

“In the third quarter, we exceeded expectations across our key financial metrics, including subscription revenue, income and meeting our free cash flow target one quarter early,” Tzuo said. “Our enterprise go-to-market initiatives are gaining traction, helping us land the largest deal in the company’s history.”

Zuora previously told investors it was expecting to achieve breakeven free cash flow by the end of the fourth quarter, but it ended up hitting that target three months early. Free cash flow refers to the amount of cash generated in its business that Zuora was able to hold onto after capital investments. Zuora had reported a negative free cash flow of $5.1 million this time last year.

The company saw strong customer growth too. It now has 653 customers with an annual contract value of more than $100,000 each, up 11% from a year ago. Meanwhile, its billings platform saw $14.6 billion in total transaction volume, up 31%.

Tzou told MarketWatch in an interview that part of the reason for Zuora’s growth is that it is helping companies navigate the storm created by the COVID-19 pandemic. “The resilience of a recurring revenue model” is helping companies “weather the storm of the current situation,” he said.

Constellation Research Inc. analyst Holger Mueller told SiliconANGLE that although Zuora had a good quarter, there is still plenty of room for improvement.

“It is facing a slowdown in revenue, which may be indicative of the whole economy slowing down in the pandemic world,” Mueller said. “Professional services revenue is also down year-over-year, although in a way that might be a good sign as Zuora somewhat uniquely loses money on professional services.”

Mueller also warned that Zuora’s increased sales and marketing expenses were a bit worrying for a company that’s still not profitable. “The company’s management will have to address these challenges to finish the year strong,” he said.

Zuora’s stock rose 6% in after-hours trading.

Photo: Zuora

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