According to a Zion market research report, the global subscription and billing management software market is estimated to grow 15.5% annually to $10.5 billion by 2025 from $3.8 billion in 2018. San Mateo-based Zuora owns 6% of the market and is looking to expand its presence. But the recently reported financial results were disappointing as the company struggles to meet the market’s expectations.
For the first quarter of the year, Zuora reported revenues of $64.1 million, growing 22%, but marginally shy of the market’s estimated $64.15 million. Loss per share of $0.11 was better than the Street’s forecast of $0.13 per share.
By segment, subscription revenues grew 32% to $47.3 million and professional services revenues were relatively flat at $16.8 million.
Among key metrics, customers with ACV equal to or greater than $100,000 grew 24% to 546. Dollar-based retention rate was 110%. Customer usage of Zuora solutions grew 34%, with $9.7 billion in transaction volume through Zuora’s billing platform.
For the current quarter, Zuora forecast revenues of $66-$68 million with a loss of $0.15-$0.13 per share. The market was looking for revenues of $71.1 million and a loss of $0.11 per share. Zuora’s fiscal year forecast also fell short of the market’s expectations. It forecast revenues of $268-$278 million with a loss of $0.44-$0.40 per share compared with the market’s forecast of revenues of $291.2 million and a loss of $0.41 per share.
The market was not pleased with the weak outlook and the company’s stock fell 32% post result announcement. Zuora attributed the weak outlook to poor sales execution. It is bringing in a new sales president to help scale the business to grow. The current President Marc Diouane will continue to act as an adviser till a replacement is found.
Zuora is also correcting course on its sales plan. It has realigned its strategic account organization and has placed many of its newer reps under more experienced managers. It is revamping its pipeline process and has added people in sales operations, field enablement, and demand generation to drive growth.
Additionally, the company is also facing several issues with the integration of its flagship products, Billing and RevPro. Its Billing product helps customers automate recurring invoices, and RevPro helps manage and accurately recognize revenue. While they are seeing strong demand from its Billing customers for RevPro, technical issues concerning the integration are causing delays in implementation. It is driving increased focus to rectification of the issue and expects to be able to correct the issue by the end of Q3.
Zuora’s issues have resulted in a class action lawsuit against it. Investors have filed a lawsuit claiming that that Zuora made materially false and misleading statements during the class period and failed to disclose that it lacked adequate resources to integrate RevPro with the core business and that the delays in integrating RevPro would materially impact the business.
Zuora also continues to face competition from giants like Oracle that have phenomenal purse strings. Earlier this year, Oracle released Oracle Monetization Cloud that accelerates time-to-market for digital and subscription-based products and services by enabling the full life cycle of customer on-boarding, offer creation, rating and discounting, billing, customized invoicing, and reporting.
Zuora’s stock is trading at $16.39 with a market capitalization of $1.8 billion. It was trading at a 52-week high of $35.68 in August last year. It has recovered from the 52-week low of $13.04 that it had fallen to in May this year after the results.
Zuora had listed in April last year by selling stock at $14 apiece, valuing it at $1.4 billion. Prior to the listing, it had been venture funded and had raised $242.5 million 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.