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Subscription model companies outperform Standard and Poor 500 firms - Zuora research

Stuart Lauchlan Profile picture for user slauchlan April 22, 2024
As speculation around an potential sale emerges, a timely reminder of the value Zuora might bring to any takeover talks.


What’s ahead for Zuora? According to a Reuters report last week, the firm that has led the Subscription Economy movement may be exploring a potential sale, with investment bank Qatalyst Partners advising on suitors. Zuora’s share price jumped by around 15% on the news breaking. 

It may, of course, come to nothing - Zuora’s being inevitably tight-lipped on the subject - but the firm’s role as an enabler of subscription models would be an attractive option for any number of other vendors. 

The company earlier this month published its latest Subscription Economy Index (SEI) which is based on anonymized, aggregated, system-generated activity on the Zuora Billing service and measures the change in the volume of business for more than 600 companies.

This year’s findings, taking in 2023, make for interesting reading. The headline conclusion - over the past 12 years, companies in the SEI have grown 3.4x faster than the companies in the S&P 500. In 2023, SEI companies outperformed S&P 500 counterparts with 10.4% year-on-year revenue growth compared to six percent. 

The study notes: 

While the SEI appears to have returned to and is holding steady at pre-pandemic levels, the S&P 500 has been in a steady downward trend since its peak in Q2 2021.

That said, the macro-economic climate has taken its toll on SEI customer acquisition with a Q1 2023 percentage of 2.22% dropping to 0.5% by Q3 before rallying somewhat in Q4 on 1.12%. But that’s down from 1.89% for the year ago comparable quarter. 

On the other hand, SEI companies are retaining customers, with a quarterly churn rate in 2023 of 6.06%, the lowest it’s been since 2019. The report states: 

Counter to suggestions of a “great unsubscribe,” companies in the SEI saw an improvement in customer retention, with churn numbers falling below pandemic and even pre-pandemic levels

In addition, customer expansion, measured as Annual Revenue Per Account (ARPA), has been on an upward trend. The quarterly ARPA growth rate at the start of 2023 was 0.73%, but was more than 2x stronger by year end on 1.76%. 

The learnings from all this? The Zuora study says: 

Global economic challenges likely contributed to slower account growth in recent years, however, adversity and competition fuel innovation and new ways of doing business. When growth is harder to come by, the companies that achieve best-in-class growth do so by investing heavily in customer retention. And because it costs more to acquire than retain customers, growth during challenging times can be achieved by adapting monetization models aimed at nurturing and growing existing customers.


Breaking down the data by sector, the SEI SaaS sector overall saw a 10.1% revenue growth rate on average as the sector continues to grow, albeit at a slightly slower rate than in 2022. Those companies adopting consumption-based models enjoying a rate of 10.4% while SEI SaaS companies using non-consumption models  grew at 10.6%. But by the end of 2023, the six year Compound Annual Growth Rate for SEI SaaS companies with consumption-based models was 20.1% compared to 16.3% for non-consumption counterparts.

And there’s going to be more to come in this regard. Back in February, Zuora founder and CEO Tien Tzuo predicted: 

We believe as more technology companies adopt AI, Artificial Intelligence, they will need to shift more of their pricing model to consumption-based pricing models. While pure usage revenue can be less predictable and more volatile, hybrid consumption models can be a good fit for SaaS offerings—particularly cloud services and generative AI. This evolution of generative AI monetization signals a broader trend among companies exploring how to effectively price their AI offerings.”

Meanwhile the other Zuora sweet spot of media and entertainment saw a 2023 revenue growth rate of six percent on average. But there’s a clear division emerging here between the  SEI Publishing Media Sub-set, which includes traditional publishing channels, such as newspapers, magazines, books, or digital channels (desktop, apps) distributed to mass or segmented audiences, and the  SEI New Media Sub-set, which includes sports, streaming and OTT platforms, fan engagement, telecommunications, operators, smart venues, advertising, music, radio, live venues, and gaming

The SEI New Media sub-set clocked up an impressive 12% revenue growth rate on average, while the SEI Publishing Media sub-set managed less than half that at 5.6%, which Zuora argues reflects an ongoing struggle and gradual adaptation of traditional publishing to the digital-first consumer preferences: 

This juxtaposition of growth rates underlines diverse trajectories within the media landscape, where New Media ventures thrive on innovation and adaptability, while Publishing Media works to re-invent and stabilize in a rapidly evolving environment.

My take

As ever, all interesting data. 

What happens next to Zuora? Watch this space. 

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