Main content

'Land and expand' thinking pays off for Zuora in Q1 as losses shrink and revenue grows

Stuart Lauchlan Profile picture for user slauchlan May 25, 2023
Summary:
A solid start to the new fiscal year, even as buyers remain cautious about big spending.

Tien Tzuo CEO Zuora 700px
Tien Tzuo

A strong first quarter for Zuora as the subscription economy firm saw revenues rise 11% year-on-year to $103.1 million, while a net loss of $19.3 million was down from $23.2 million for the comparable quarter last year. 

Other stats of note: 

  • Subscription revenue was up 14% to $89.7 million. 
  • Customers with ACV equal to or greater than $100,000 hit 782, up from 746 last year. 
  • Customers with ACV equal to or greater than $250,000 hit 436, up from 386. 
  • ARR was $373.9 million, compared to $326.3 million.

CEO Tien Tzuo argued that the shift to recurring revenue models continues in the current macro-economic climate, even though buyers “continue to be cautious”: 

In the emerging template for a modern business is one that has a direct relationship with their customers and when it is constantly finding new ways to monetize that relationship, and of course, our technology continues to be a critical part of enabling that shift.

Customers 

New customer logos and go-lives during the quarter included Forbes, Gannett, TELUS Corporation and Thales Group. Tzuo picked out some of these in more detail, starting with TELUS: 

They are the second largest telecom company in Canada with more than $13 billion in annual revenue. Now as a telco they obviously know Billing systems and they put us through our paces for their new digital services. They wanted a modern cloud-based system. They looked at everything and they ultimately selected Zuora Billing to power these next-gen services.

Also after Q1, we are now powering the full order to revenue process for Gannett, a leading publisher with 250 newspapers and 2 million subscribers, including the flagship publication, USA Today. Connecting the door to offer more flexible pricing and packaging and we’re already seeing their subscriber conversion rates go up significantly since going live on Zuora.

Thales Group, a global technology leader that serves the security, aerospace, digital identity and transportation industries with more than €7 billion in annual revenue, they went live on Zuora in Q1 as well. They streamlined and automated Billing for its data protection on-demand services.

Land and expand

There’s also been more evidence that ‘land and expand’ as a strategy is working, he added, noting that over the past four quarters, over 60% of the firm’s 1000 customers expanded their use of Zuora products. He cited Zoom as case in point: 

We’ve been powering Zoom's growth since they were a sub-$50 million company. We helped them through the rocket ship growth rates they saw in 2020 and 2021. Well, in Q1, Zoom didn’t just re-commit to Zuora for another four years, they also added several new innovations, including advanced consumption. Now before they renewed, they, of course, did their homework. They asked themselves, ‘Should we simply consolidate onto a single ERP?’. Ultimately, they decided that Zuora was simply the best fit for their needs.

Zuora's approach to winning deals has evolved, he added: 

I would say, we’re much more comfortable saying, ‘Look, there’s no reason you have to start in a large place. You’re looking for quick ROIs, right? You’re looking for a quick impact on your business? We can deploy a much smaller footprint of our products. We can get some success, we can show you success and we can grow from there’.

And so what you’re seeing is the investments that we made in customer success and innovation and working with our customers, really proving out the expand motions. That’s what’s giving us a lot of comfort to say, Hey, if it makes sense to do a smaller deal, given the current spend environment, why wouldn’t we do that, right? It still locked into a long-term customer value.

Tzuo concluded:

The simple story is, when you have a sticky product that goes into an account, you tend to have a customer for life. If you keep them happy, if you continue to innovate, it gives us a fantastic position from which to expand. 

My take

Interesting to note that despite that shift towards encouraging smaller ‘land and expand’ deals - a sound move in the current economy - that in future Zuora won’t be reporting on how many customers have ACV up to $100,000. With some 96% of the total customer base now above that metric, future quarterly reports will break out data on customers with ACV equal to or greater than $250,000. Tzuo argues: 

When we were really looking at it, we felt the $100,000 metric wasn’t just becoming very relevant anymore. It was 96% of our business. One of the things that we’ve also said is the fact that we absolutely have a ‘land and expand’ point of view, so $250,000 felt like the right place to land us. 

However that plays out, a good start to the new fiscal year for Zuora. 

Loading
A grey colored placeholder image