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2017 IPO Prospects: Zuora Thinks it Will be a Good Time for an IPO

Posted on Wednesday, Mar 29th 2017

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Over the past few years, the rise of cloud-based services has also resulted in the growth of a subscription economy. More and more enterprises are looking to transition from a traditional product sales model to a pay-as-you-go service relationship. Analysts estimate that global subscription economy will be a $100 billion market by 2020.

Zuora’s Offerings

Mountain View, California-based Zuora is one company assisting in this transition. Zuora was founded in 2007 by K.V. Rao, Cheng Zou, and Tien Tzuo, alumni from WebEx and Salesforce.com. The idea for Zuora came to Tien when he was the CMO at Salesforce. During a meeting with Salesforce CEO Marc Benioff, he realized that there were several challenges with recurring billing for subscription-based SaaS companies such as Salesforce. While the subscription model was a preferred model of doing business, it also involved several complications concerning billing, upgrades, and pricing bundles.

Tzuo managed to build a team that started to develop the idea and concept behind Zuora after speaking to several companies. The founders were convinced that organizations were migrating to a business model where they would offer services through subscriptions instead of a single-use sale. They wanted to establish Zuora as the platform that could offer an end-to-end subscription management services to help businesses in automating recurring billing and collections, configuring, pricing, and quoting for recurring revenue businesses.

Zuora’s platform is a SaaS solution that includes billing, commerce, finance, and revenue recognition and is able to address the complex issues surrounding subscription billing that were not being addressed by traditional, legacy financial systems. The platform tracks subscription payments, invoices, pricing, product catalogs, and taxation. It also provides access to reporting and analytics, that can vary from customer demographics, to behaviors, to financial performance. It is well integrated into other business applications and has an app development marketplace for customers requiring third-party integrations. Its services replace existing invoicing solutions with a subscription service that can be customized to the organization’s needs and scale. Zuora’s customers include startups like Box, Marketo, and Zendesk as well as manufacturers such as Schneider Electric and Honeywell.

Last year, it released a predictive data product called Zuora Insights. Insights allows Zuora’s customers to combine financial, demographic, and behavioral data to provide it with useful insights regarding the customer. The product allows organizations to proactively make use of this data to find issues and understand the customer better.

In 2016, Zuora launched a Subscription Economy Index that looks at revenue growth of nearly 360 subscription businesses and compares that growth to sales for companies in the S&P 500 and US retail sales. The results provided by the Index are impressive. It proves that since the start of 2012, the sales of subscription economy businesses grew nine times faster than sales of companies in the S&P 500 and more than four times the rate of US retail sales. For the period January 2012 through September 2016, the subscription businesses have increased sales 15.1% versus 1.7% for revenues of companies in the S&P 500 and 3.6% for retail sales, including e-commerce.

Zuora’s Financials

Zuora earns revenues by charging its customers a percentage of their subscription revenues billed through its platform. Its financials are not disclosed, but analysts estimate that it was managing nearly $42 billion in invoices in 2015.

Zuora has been venture funded so far with $242.5 million in venture funding from investors including BlackRock, Wellington Management, NextWorld Capital, Northgate Capital, Vulcan Capital, Benchmark Capital, Marc Benioff, Shasta Ventures, Lehman Brothers, Redpoint Ventures, Tenaya Capital, Index Ventures, Greylock Partners, and Dave Duffield. Its last round was held in March 2015 when it raised $115 million at an undisclosed valuation. In early 2011, its valuation was estimated to be between $300-$500 million. Analysts estimate that it is presently valued at more than $1 billion.

Zuora is expected to go public this year. The company hasn’t confirmed any plans, but in an interview last year, its CEO and co-founder, Tien Tzuo, acknowledged that that “2017 would be a good time (for an IPO)”.

Photo Credit: Erich Ferdinand/Flickr.com

This segment is a part in the series : 2017 IPO Prospects

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