Is Zuo a Saul Stock? Deep dive article

Up over 10% today and 55% since it’s ipo last month, this subscription based cloud software company has come,flying out of the gates. But is it worth its valuation?

https://seekingalpha.com/article/4179669-subscribe-zuora

1 Like

ZUO’s CEO was on CNBC Mad Money with Cramer last night. His company helps transform businesses into a subscription model. I took a quick look at their only quarterly report and growth at least at first glance wasn’t that high compared to other SAAS model stocks we have invested in. The dollar based retention was not nearly as high as stocks like PVTL either.

Rob

2 Likes

ZUO’s CEO was on CNBC Mad Money with Cramer last night. His company helps transform businesses into a subscription model.

Good intel, Rob. I am probably speaking out of turn, as I haven’t looked into Zuo at all, but that business model seems to smack of “riding the trend.”

Bear

1 Like

It is riding the trend, but not like the just opened their business 2 years ago.

CEO comes from saas background with salesforce.

https://www.zuora.com/about/team/

Tien Tzuo, widely recognized as one of the thought leaders in the software-as-a-service industry, founded Zuora in 2007. As Zuora’s CEO, Tzuo evangelized the shift to subscription based business models and the complex billing structures they inherit, coining the phrase Subscription Economy.

So their ceo coined phrase “subscription economy”. Sounds more like a leader/visionary than a guy jumping on a hot trend.

Having said all that, ZUO had hot ipo and seemed pricey from get-go, and while i understand the powerof saas, iam not sure why other companies need zuora to go saas path.

They remain on my watchlist though.

Dreamer

Here is the interview with Cramer

https://www.cnbc.com/video/2018/06/14/zuora-ceo-on-how-newly…

Rob

Good interview. Did not see the Cramer clip before I posted, but it does explain today’s 10% bump.

My takeaway is that Zuora is not just another subscription play. Instead it’s a pick and shovel software platform for all existing and future subscription based companies. And it has a 6 year lead on any potential challengers for this space.

Believe we call that a “moat” around here.

2 Likes

I really need to investigate this further. Even after the interview I could not tell you specifically what they do or why I would want to but their service. Do you guys know of a good source for a deep dive into how their business really works and the projected numbers?

https://seekingalpha.com/article/4179669-subscribe-zuora

Was researching criteria to determine success for Zuora and other SaaS stocks (Software-as-a-Service ie. the new way of distributing and selling software based on the cloud so there is no need for a physical distribution of the software).

 In my search I came across this helpful guide, from of all places, the Zuora website:

[http://info.zuora.com/rs/602-QGZ-447/images/10-Essential-Saa...](http://info.zuora.com/rs/602-QGZ-447/images/10-Essential-SaaS-Growth-V9.pdf)

I could not help but see the irony...

Zak
2 Likes

I could not tell you specifically what they do

Traditional ERP systems Quote-to-Cash process is build more for manufacturing companies and they are not able to address subscription based model. That’s they are suited for capturing an order, delivering the product and collect the cash. On the other hand, if you are offering services (for ex: a telephone company, or a cable company), these ERP solutions require heavy customization. There are billing and revenue management software available but even they are inadequate and not very flexible. Adding a new subscription plan is pretty cumbersome, often you have to design that as a “product” with “service element” and capturing overage is even more painful.

Zuora address this market, hence “subscription economy” tagline. They have a moat and have been around for a decade.

They have 45m shares + 17 or 18 m in options with $4.5 strike price, meaning they are in the money. Assuming 60m shares that gives you a market cap of $2B with 200m in revenue. They are not profitable and the break-even for profitability is closer to $400~$500m run rate.

I missed the IPO.

1 Like

They have 45m shares + 17 or 18 m in options with $4.5 strike price, meaning they are in the money. Assuming 60m shares

The above is incorrect, from the latest 10-Q,

As of April 30, 2018, 12.7 million shares of the Company’s Class A common stock and 94.5 million shares of Class B common stock were outstanding