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Zuora (ZUO) Q2 Earnings Beat, Subscription Revenues Up Y/Y

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Zuora (ZUO - Free Report) reported break-even in second-quarter fiscal 2021, beating the Zacks Consensus Estimate by 100%. The company had reported loss of 9 cents in the year-ago quarter.

Moreover, revenues of $75 million beat the consensus mark by 3% and increased 7.5% year over year.

This solid outperformance was led by the robust adoption of Zuora’s platform. Transaction volume through Zuora’s billing platform was $12.7 billion, up 26% year over year.

Moreover, this Zacks Rank #3 (Hold) company benefited from a resilient subscription-based business model similar to its Zacks Internet Software industry peers MongoDB (MDB - Free Report) , Smartsheet (SMAR - Free Report) and Cloudera (CLDR - Free Report) . You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Notably, MongoDB’s, Smartsheet’s and Cloudera’s subscription revenues accounted for 95.8%, 91.7% and 89.4% of their respective second-quarter fiscal 2021 revenues. While Smartsheet’s subscription revenues jumped 43% year over year, Cloudera’s and MongoDB’s grew 17% and 40.7% respectively.

Zuora, Inc. Price, Consensus and EPS Surprise

Markedly, Zuora’s subscription revenues accounted for 77.8% of total revenues. The figure was $58.3 million, up 15.1% year over year.

As anticipated, subscription billings increased at a much slower rate– 3% year over year to $49.7 million in the reported quarter.

Top-Line Details

Professional Services Revenues (22.2% of total revenues) declined 12.6% year over year to $16.7 million.

In fiscal second quarter, the number of customers with annual contract value— equal to or greater than $100K — was 645, up 14% year over year. The company added 35 new customers in the reported quarter.

Dollar-based retention rate declined to 99% as the company witnessed higher churn rate.

Zuora helped 41 customers go live in the quarter. Notable go-lives included Analog Devices, Brother International Corporation, McGraw Hill, SiriusXM, and Wix.’

Moreover, Zuora added new customers in its core markets of high tech, media and manufacturing. The company also witnessed interest from industries such as education and the public sector as the subscription economy continues to expand.

During the quarter, the company launched Zuora Analytics and also announced major enhancements to Zuora Billing.

Operating Details

Non-GAAP gross margin expanded 610 basis points (bps) year over year to 63%.

Non-GAAP subscription gross margin increased to 79%, driven by efficiencies in data-center spending. Non-GAAP professional services gross margin was 7%.

Research & development (R&D) expenses as a percentage of revenues decreased 250 bps on a year-over-year basis to 19.7%. Moreover, sales & marketing (S&M) expenses declined 390 bps to 31.7%.

However, general & administrative (G&A) expenses as a percentage of revenues were 13.7%, up 10 bps year over year.

Total operating expenses as a percentage of revenues were 65%, down 620 bps from the year-ago quarter. Lower expenses resulted from limited travel and events.

Non-GAAP operating loss in the quarter under review was $1.6 million compared with $10.1 million in the year-ago quarter.

Balance Sheet & Cash Flow

As of Jul 31, 2020, the company had cash, cash equivalents and short-term investments of $179.2 million compared with $172.6 million as of Apr 30, 2020.  

Free cash outflow was $4.6 million compared with $2.6 million in the year-ago quarter.

Guidance

For the third quarter of fiscal 2021, Zuora expects subscription revenues in the range of $59-$60 million. Revenues are expected between $73 million and $75 million. The Zacks Consensus Estimate for the metric is currently pegged at $72.9 million, implying 1.6% growth from the figure reported in the year-ago quarter.

Non-GAAP loss from operations is expected between $4.5 million and $5.5 million.

Non-GAAP loss is expected between 4 cents and 5 cents per share. The consensus mark for the same is pegged at 8 cents per share.

For the third quarter, Zuora expects free-cash outflow to be approximately $5 million.

For fiscal 2021, Zuora expects free-cash outflow to be approximately $8 million. The company expects cash flow to break even by fourth quarter this year.

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