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What to expect from Zuora’s Q2 earnings on August 28?

By Staff Correspondent |

Zuora’s (NYSE: ZUO) stock plunged about 25% in May after the firm reported weak fiscal sales guidance during the first quarter results. The company’s stock touched a new 52-week low of $13 in June and hasn’t recovered much in the last 3 months. Zuora is slated to report its second quarter results on August 28 after the bell.

The company is expecting revenue of $66-68 million and subscription revenue of $48.5-50 million. Adjusted loss per share is projected in the range of 13-15 cents per share.

Analysts are expecting top line of $66.9 million and non-GAAP loss of 14 cents per share. Given the strong momentum seen in the subscription side, investors would be expecting better-than-expected results in the Q2 period.

Looking ahead for the fiscal period, Zuora is anticipating sales of $268-278 million and revenue from subscription is expected in the range of $200-206 million. Adjusted loss is projected at 40-44 cents per share.

The Wall Street is estimating revenue of $274.4 million and non-GAAP loss of 43 cents per share. It would be interesting to see whether the company is revising its outlook for the full year.

Tien Tzuo, CEO Zuora
Tien Tzuo, Zuora CEO

Tracking Key Metrics

Subscription services contribute more than 70% of revenues to Zuora. In the last four quarters, the cloud-based platform has seen subscription revenue growth of 32% (1Q20), 35% (4Q19), 43% (3Q19) and 44% (2Q19). Looking at the growth trend in the past 1 year, there is a sequential decline in the revenue growth. It’s worth to track the subscription revenue growth in the second quarter.

Last quarter, high value customers with annual contract value (ACV) over $100,000 rose 24% to 546. This metric would help shareholders to gauge whether Zuora is able to bring in clients with high ACV which brings in sustainable revenues. It also provides an opportunity to upsell/cross-sell more products to the existing clients.

Dollar-based retention rate is another metric which is of interest to the street. In the first quarter, the company recorded rate of 110%. However, it decreased 2% from the fourth quarter levels. This metric would help investors to track the customer retention rate and the capability of the firm to sell more products to the existing clients.

Bottom Line

The company has been facing product integration issues relating to RevPro implementation on Billings clients. The issue is anticipated to be fixed only in the latter half of this year. This issue might weigh down on the sales in the second quarter.

Even though the headline numbers has been growing, Zuora expects to report losses in the near future. This is mainly due to increasing sales and marketing team and investing in the product offerings, which is expected to augur well in the long-term.

Last quarter, sales and marketing spending was 40% of the total revenues and operating expenses surged 23% due to the ongoing investments. Hence, investors would take a holistic view of the company’s performance.

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