Zuora revenues up as customers look to Subscription Economy to ride out the wider storm

The trends that the Subscription Economy is built on transcend any near-term macro level uncertainty.

So said Zuora CEO Tien Tzuo as he announced the company’s Q1 numbers, although a dip in the share price following the results release suggests perhaps that Wall Street wasn’t quite so convinced.

It was in reality a solid enough quarter - revenue rose to $93.2 million from $80.3 million, topping analyst expectations, while net loss was $23.2 million, up from $17.7 million for the year ago quarter. Subscription revenue came in at $78.5 million, up 21% year-on-year.

But Wall Street remains in skittish mood around tech stocks - to say the least! - although Tzuo made his pitch that the volatility of the current climate should not be knocking Subscription Economy firms off course:

Companies continue to see that when the rest of the world faces volatility, the Subscription Economy can provide predictability such as the power of the recurring revenue model.

He added:

You saw this two years ago in the first half of 2020, specifically in Q1. We snapped back. It's been two years, and I know people's memories are short, but that downturn had significantly greater uncertainty and turmoil. What we saw then is what we are seeing now - that subscription business models are resilient; that when you have a recurring revenue model, you're not chasing every single dollar of revenue every single quarter;  that you start practically at the finish line; and you've got a product and service that's indispensable that customers, that creates a level of customer loyalty. Those are simply much better businesses to manage.

Customers

He cited a number of examples to support his thesis:

Bloomberg grew its subscription revenue by 58% in 2021 compared to 2020. GoPro, another one of our customers, just announced on their latest earnings call earlier this month that their subscription and services revenues are up 73% year-over-year. And Zoom is now 5x bigger than they were before the pandemic. Today, the company makes over $1 billion a quarter, while 2 years ago, the company was making roughly $200 million a quarter.

New customer signings during Q1 included:

In publishing, we signed up the New York Times. In manufacturing, we signed a multi-national electronics manufacturer with more than $2.5 billion in revenue, known for its audio and video equipment. In financial services, we signed one of the largest technology-forward US banks, with more than $30 billion in revenue.

Encouragingly more and more customers are adopting more than one Zuora product offering, Tzuo added:

More than half of our new logos are buying more than one product and a quarter are buying the entire Zuora suite. For example, BMC Software, a global leader in software solutions for the autonomous digital enterprise, turned to Zuora to be part of their quote-to-cash and revenue recognition transformation. Zuora will support the company's ability to deliver their SaaS offerings as the central source of all of BMC's order management and revenue recognition.

And there are increasing cross-sell and upsell opportunities, he said:

In Q1, we saw three expansion wins with upsell deals valued at $500,000 or more. Customers like Siemens, in Q1, expanded their work with Zuora to power new recurring revenue streams across additional divisions of their business. All this has fueled multiple quarters of ARR growth and strong dollar-based retention rate.

The firm’s enterprise play is paying off, according to Tzuo:

We believe the sweet spot in the market for us lies with large enterprises, and we see this playing out in our deals. In Q1, we closed 6 deals with ACV (Annual Contract Value) of $500,000 or more, and two with ACV of $1 million or more. Year-over-year, our average sales price for new logos has more than doubled. Now, these enterprises are turning to Zuora because of our technology, but it's also because of our unique expertise.

Alongside the increasing enterprise footprint comes more attention from the big systems integration (SI) companies. Tzuo noted:

Our partners continued to influence over 70% of all new business transactions in Q1 and our partner source pipeline continues to grow. In Q1, we reached a big milestone in our partner certification efforts - we now have more than 450 globally certified consultants with our SI partners. This represents over 3x growth compared to this time last year.

Our strong relationship with partners continues to gain momentum. I'm truly excited to share that at Deloitte Digital's recent Alliance Summit, we learned that Zuora is now Deloitte Digital's fastest-growing emerging partner globally. Deloitte Digital is also dedicating resources to help even more enterprises transform their business by monetizing new digital services with us in this new Zuora factory.

My take

A solid enough Q1. But with the macro-economic environment showing no signs of stabilizing, let alone improving, in the near future, Tzuo’s thesis around the robustness of the subscription economy looks set to be put to the test over the coming months. Watch this space!