Zuora, Inc (ZUO) enables their customers to provide products and services on a subscription basis. ZUO offers several products in the subscription life cycle including launching the product or service, and managing revenue, billing and collections. Additionally, their platform connects to several ERP systems and other third-party applications. Zuora has two business segments: Subscription - platform products; and Professional Services - deployment of the platform.
Revenue Growth
Zuora has experienced strong adoption of its products over the last several years as evidenced by double-digit revenue growth.
The growth is driven by deepening of relationships with current customers and adding new customers as the shift to online marketplaces and subscription-based products/services become more prevalent.
The deepening of relationships can be examined by the dollar-based retention rate. Management focuses on Annual Contract Value ("ACV") equal to or greater than $100M because it demonstrates that Zuora's products/services are widely adopted. As of FY20, the retention rate was 104%, which is solid but below the 112% and 110% experienced in FY19 and FY18, respectively.
To demonstrate the growth of subscription based products/services, Zuora developed the Subscription Economy Index.
Subscription Economy Index™ (SEI), Zuora’s landmark index tracking the rapid ascent of the Subscription Economy, reflects the growth metrics of hundreds of companies around the world. It also spans a number of industries including SaaS, IoT, manufacturing, publishing, media, telecommunications, and business services.
The table below outlines the SEI vs S&P 500 Sales Index and US Retail Sales Index. According to the report, subscription businesses grew revenues about 5 times faster than S&P 500 company revenues (18.2% versus 3.6%) and U.S. retail sales (18.2% versus 3.7%) from January 1, 2012 to June 30, 2019. That is strong tailwind and Zuora's revenue growth has kept up. In fact, one of the goals of the company is to deliver 25 to 30% of sustained growth.
