A First Look At Zuora (NYSE:ZUO)

A great deal of intelligence can be invested in ignorance when the need for illusion is deep.”― Saul Bellow.

Today, we put SaaS concern Zuora, Inc. (NYSE:ZUO) in the spotlight for the first time. The company is posting consistent sales growth, has net cash on its balance sheet and should reach profitability for the first time this fiscal year. However, insiders seem to be cashing in some equity on a consistent basis.

Company Overview:

Zuora, Inc. is headquartered just outside of San Francisco in Redwood City, CA. The company provides cloud-based subscription management platform that enables companies in various industries to launch, manage, and transform into a subscription business. Capabilities from this platform include billing, revenue recognition, digital publishing, etc. The stock currently trades right at nine bucks a share and sports an approximate market capitalization of $1.3 billion. Zuora’s fiscal year begins on October 1st.

Third Quarter Results:

Zuora, Inc. posted its Q3 numbers on November 29th. The company delivered a non-GAAP profit of nine cents a share, three cents above expectations. On a GAAP basis, the company posted a net loss of $5.5 million (4 cents a share). This was a substantial improvement from the GAAP net loss of $37 million, Zuora posted in 3Q2023.

Revenues rose nearly nine percent on a year-over-year basis to $109.8 million, slightly above the consensus. Annual Recurring Revenue or ARR rose 13% over 3Q2023 to $386 million. Customers with an annual contract value or ACV rose to 452 from 420 in the same period a year ago. Management provided the following forward guidance for Zuora.

The company recently rolled out some new capabilities including Zuora Integration Hub and Zuora Extension Studio.

Analyst Commentary & Balance Sheet:

Since third quarter results posted, Craig-Hallum ($13.50 price target), Needham ($15 price target) and Lake Street ($12 price target) have all reissued Buy ratings while Goldman Sachs ($10 price target) has maintained its Hold rating.

Just under four percent of the outstanding float in the shares is currently held short. Several insiders have frequent and consistent sellers of the equity throughout 2023. So far in the fourth quarter, they have disposed of approximately of just over $3 million worth of stock collectively.

The company ended the third quarter with nearly $495 million of cash and marketable securities on its balance sheet. Zuora had adjusted free cash flow of $12.7 million in the third quarter of this year, company to a negative adjusted free cash flow of $7.2 million in the same period a year ago. Net cash used for all operating activities in the third quarter was $55.7 million, but that included $68.3 million to settle litigation. The company listed just over $355 million of long-term debt on its latest filed 10-Q.

Verdict:

Zuora posted a loss of 13 cents a share on $396 million worth of sales in FY2023. The current analyst firm consensus sees 26 cents a share in profit in FY2024 on sales of just over $431 million. They project earnings to rise to 32 cents a share in FY2025 as revenues rise by 10%.

Zuora is seeing solid if unspectacular revenue growth and moving rapidly into profitability on a non-GAAP basis. However, valuations are hardly compelling given growth trajectories at approximately 35 times forward earnings. Insiders also seem to be cashing in some chips at these levels. Given this, the investment recommendation on ZUO is to avoid.

Confrontation leads to action. Avoidance leads to inaction.”― Colleen Hoover.