Zuora (ZUO 28.99, -5.02, -14.76%) fell 15% pre-market despite reporting strong
results and raising revenue guidance yesterday afternoon.
Zuora provides cloud-based software on a subscription basis that enables companies to launch, manage, and transform into a subscription business. The company has a promising outlook for growth as more companies shift from existing product and service templates to subscription business models.
However, it seems that the stock had gotten ahead of itself. This was Zuora's second quarterly report since the company priced 11 mln shares at $14 in an April IPO. During its first quarterly earnings report as a public company back in late May, the company also topped top and bottom line consensus expectations, showcasing revenue growth of 60% year/year and broadly upside guidance.
Today, despite beating estimates and raising revenue guidance, the stock is succumbing to elevated expectations, having been up 143% from the IPO price in a little over four months. The stock was trading at 15x sales estimates, or ~12x sales estimates for next year, which is quite expensive, even for a young enterprise software company.
Coming back to the financial results, second quarter revenue grew 47% to $57.8 mln, above $53.5-54.5 mln guidance. The company reported an adjusted net loss of $0.13/share. Dollar-based retention rate remained at 112%, driven by strong upsell activity.
Zuora forecasted third quarter revenue of $58.3-59.3 mln, which was 5% above consensus at the midpoint. The company did forecast a slightly larger than expected Q3 net loss, but investors are largely much more inclined to focus on top-line growth.
Zuora raised fiscal 2019 revenue guidance to $227-230 mln from $220-223 mln. The company also said the dollar-based retention rate would be at the high end of 108-112% growth outlook for the year.
Zuora management said its conviction in the subscription economy has grown since the IPO as more and more businesses across every sector have embarked on transformation into subscription models.
While the company's long-term outlook remains promising, the stock's multiple is contracting from elevated levels this morning. At pre-market prices, the ~$3.0 bln valuation represents ~13x sales estimates or ~10x next year's sales estimates.
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