Zuora (ZUO) is a software provider powering the subscription economy trading at a severe discount to other SaaS companies with similar financial profiles. On an enterprise value to revenue basis, the company trades at about 3.7x calendar 2022E revenue. This is a discount to most SaaS companies with similar revenue growth rates which trade at 6-12x revenue multiples. Zuora is two years into a turnaround with a new head of sales and a revamped sales strategy and team. Zuora's current subscription revenue growth is about 15% - we think this can accelerate over time to a 25% clip. The company is currently close to breakeven - we feel there is operating leverage in the business with 80% subscription gross margins and flattening operating expenses. If revenue can accelerate, there is a tremendous amount of upside to the stock. Revenue growth has decelerated the past couple of years and the market is pricing in a continued slowing in Zuora's current valuation. Completion of a successful turnaround would be a positive surprise to the market and ZUO stock would sharply appreciate in that scenario.
Zuora sells billing and revenue recognition software to companies that are starting subscription businesses or switching to a subscription revenue model. The software industry has moved from primarily a perpetual license model 20 years ago to a subscription model today. Now other industries are beginning to make this move (think Netflix, Disney+, Spotify, ADT, Caterpillar, etc.) as they shift from selling products to selling usage-as-a-service. Zuora calls this the subscription economy and it is the macro driver for the business. Zuora Billing allows companies to charge their customers any type of subscription rate they desire, from billing by time to billing by applications used to billing by consumption. Zuora Billing allows for 50 charging models and 180 currencies and supports 20 payment methods and 30 payment gateways, including a new partnership with
