Subscription Economy champion Zuora turned in a solid set of Q4 and full year numbers yesterday. For Q4, revenue was up 14% year-on-year to $103 million with net loss of $31.9 million, down from a loss of $35.2 million for the comparable quarter last year. For the full year, revenue was also up 14%, to $396.1 million, with a net loss of $122 million.
Other stats of note:
- Annual Recurring Revenue was $365.0 million as of 31 January 2023, compared to $313.9 million this time last year.
- $23.8 billion in transaction volume went through Zuora’s billing platform in Q4, up 12% year-on-year.
- 773 customers have ACV equal to or greater than $100,000, up from 747 for the comparable Q4 period in 2022.
- Customers paying more than $1 million a year grew by 33%.
- For the full-year, subscription revenue ended at $338.4 million, up18% year-on-year.
Things appear to be settling down somewhat in the wider macro-economic environment, observed CEO Tien Tzuo:
Over the past quarter, we started seeing buyer behavior stabilize, especially in our installed base. While the uncertainty we saw in buyer behavior at the end of Q3 has not disappeared, it certainly has lessened. Even as companies settle into this extended period of higher interest rates and lower macro-economic growth they continue to prioritize digital transformation. They continue to launch and scale recurring revenue businesses and they continue to pursue growth and new revenue streams through these new digital services. As an example, the majority of deals that were pushed at the end of our third quarter ultimately closed in Q4. In addition, we saw our win rates also improved quarter-over-quarter.
New customer logos and go-lives in Q4 included AVEVA, Donnelley Financial Solutions (DFIN), Microsoft, Scout24, SimpliSafe and Stellantis. Tzuo picked out some end user examples for attention:
AVEVA, a global leader in industrial software and one of the largest software companies in the UK with more than $1 billion in annual revenue, selected Zuora to help accelerate its subscription service with the goal of having more than 80% of its business coming through recurring revenue in just three years.
Donnelley Financial Solutions, otherwise known as DFIN, a leader in risk and compliance solutions came to us last quarter after outgrowing their homegrown system. After a comprehensive review, they chose Zuora's full order to revenue suite of products. Following the implementation of billing, revenue, and the Zuora platform DFIN we'll be able to better manage multiple complex revenue streams from one-time transactions to recurring subscriptions and advanced consumption models.
And finally, Scout24, who operates ImmoScout24 in Germany and Austria. This is a residential and commercial real estate online marketplace powering more than 20 million monthly users. And they came to Zuora because we were the best option available to handle the fast growth and scale they needed. For these companies and more, we believe that our singular focus here is what gives us a competitive advantage.
The wider macro-economic climate is still a factor, Tzuo noted:
There's certainly a macro-level slowdown in tech. What we're trying to highlight is, if you look at what happened for us in Q3, and specifically in the month of October, which is end of Q3, it just felt like we sensed in our buyers that there was a lot more uncertainty in Q3, in October. They weren't sure whether the economy would slow down, they weren't sure what the Fed was going to do.
While I wouldn't say that that the tech industry is back to a growth mode, at least the level of uncertainty of what the Fed is going to do, and other factors, seems to be lower. And so, the uncertainty we saw in the pipe has lessened.
Because of the product that we have, because of the customer base that we have, we have the fortune of having a solid customer base and a very sticky product. I think that gives us a level of certainty even in these unpredictable times of being able to manage the business, which is fortunate for us.
And that product is the key asset, he noted:
I think people just continue to underestimate how complicated billing can be. We’ve seen a company like NetSuite, before they were acquired by Oracle, take three runs at trying to build Suite Billing. Customers weren't happy.
We think really in this environment where you kind of have to focus on your core, the good news for us is our core is subscription management. It is billing. It is revenue recognition. It is supporting all these different types of charge models and taxes and rev rec rules. So, we feel really good about our position…Ultimately, our technology is very differentiated and people eventually figure that out, and it puts us in a really good position.
A solid set of numbers. Also announced this week was the departure of Sri Srinivasan, Zuora’s Chief Product and Engineering Officer, whose loss will clearly be felt. Tzuo said:
When Sri came in, he's been fantastic. He came in for a mission. He accomplished that mission. He got our innovation machine going. He created a world-class team with fantastic modern processes and he leaves behind a great infrastructure, great technology platform, a great team. I have every confidence in the team and fully support his decision. I'll miss him, but I think he leaves us in a really good place.
Chief Customer Officer Tom Krackler is stepping up as interim holder of the product role, while a search is undertaken for a full-time replacement. Given Tzuo’s observations on the importance of the product and his emphasis on innovation, finding the right leader for this seat is going to be crucial.