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Subscription management platform Zuora (NYSE:ZUO) reported Q1 CY2024 results topping analysts' expectations, with revenue up 6.5% year on year to $109.8 million. The company expects next quarter's revenue to be around $112.5 million, in line with analysts' estimates. It made a non-GAAP profit of $0.11 per share, improving from its profit of $0.05 per share in the same quarter last year.
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Zuora (ZUO) Q1 CY2024 Highlights:
- Revenue: $109.8 million vs analyst estimates of $108.8 million (small beat)
- Operating profit (non-GAAP): $18.6 million vs analyst estimates of $14.9 million (24.8% beat)
- EPS (non-GAAP): $0.11 vs analyst estimates of $0.07 ($0.04 beat)
- Revenue Guidance for Q2 CY2024 is $112.5 million at the midpoint, roughly in line with what analysts were expecting (operating income guidance raised and slightly ahead)
- The company reconfirmed its revenue guidance for the full year of $455 million at the midpoint (operating income guidance raised and slightly ahead)
- Gross Margin (GAAP): 68.1%, up from 63.8% in the same quarter last year
- Free Cash Flow of $31.4 million, up 127% from the previous quarter
- Net Revenue Retention Rate: 104%, in line with the previous quarter
- Market Capitalization: $1.52 billion
Founded in 2007, Zuora (NYSE:ZUO) offers software as a service platform that allows companies to bill and accept payments for recurring subscription products.
Payments SoftwareConsumers 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 GrowthAs you can see below, Zuora's revenue growth has been unremarkable over the last three years, growing from $80.33 million in Q1 2022 to $109.8 million this quarter.
Zuora's quarterly revenue was only up 6.5% year on year, which might disappoint some shareholders. On top of that, the company's revenue actually decreased by $900,000 in Q1 compared to the $820,000 increase in Q4 CY2023. While we'd like to see revenue increase each quarter, management is guiding for growth to rebound in the next quarter and a one-off fluctuation is usually not concerning.
Next quarter's guidance suggests that Zuora is expecting revenue to grow 4.1% year on year to $112.5 million, slowing down from the 9.4% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 6% over the next 12 months before the earnings results announcement.
Product SuccessOne of the best parts about the software-as-a-service business model (and a reason why SaaS companies trade at such high valuation multiples) is that customers typically spend more on a company's products and services over time.
Zuora's net revenue retention rate, a key performance metric measuring how much money existing customers from a year ago are spending today, was 104% in Q1. This means that even if Zuora didn't win any new customers over the last 12 months, it would've grown its revenue by 4%.
Despite falling over the last year, Zuora still has an adequate net retention rate, showing us that it generally keeps customers but lags behind the best SaaS businesses, which routinely post net retention rates of 120%+.
Key Takeaways from Zuora's Q1 Results Revenue in the quarter beat by a modest amount, but operating income beat by a convincing margin. While full year revenue guidance was maintained, the company raised its full year outlook for operating profit. Said differently, topline growth is in line with expectations, but it's more profitable and efficient growth. Overall, this was a solid quarter for Zuora. The stock is up 12.6% after reporting and currently trades at $11.1 per share.
