Greetings Fools,
I don’t post too often here, but am an avid lurker 
I saw the discussion of Zuora and wanted to throw my two cents in. You can see the results of the framework below, but I wanted to add a few thoughts here on the comments made.
Personally, the professional services don’t both me at all. This is the cost of getting people set up. And its also a sign of a moat – the switching costs for customers are high. If Zuora had trouble getting people to sign up, that’d be a problem. But that doesn’t seem to be the case – the number of contracts with over $100K in annual subscription volume has more than doubled in less than three years. As has been mentioned many times, I think this will be less and less of an issue as time passes.
Personally, what seems the most important is that revenue retention has increased since going public, and subscription revenue growth has accelerated since going public.
I’ll get off my soap box now:) Here’s my run-down, and in full disclosure, ZUO makes up 2.2% of my real-life holdings.
Using my Anti-fragile framework, I wanted to show how ZUO stacks up.
Barbell Strategy
Mission Statement
“to enable all companies to be successful in the subscription economy.””
Earlier on the webpage that contains the mission statement, it outlines what it sees happening in the world, namely, that “one day, every company will be part of the subscription economy.”
Simple: Yes.
Optionable: Very optionable – right now, billing and revenue recognition are the main focuses. But there are a zillion different directions this could take.
Inspirational: Yes! I love the idea of people owning less, but that’s just me
+2 points
Moat
Network Effect: This is a weaker moat, but an important one nonetheless. There really aren’t that many companies as laser-focused on this niche as Zuora. The more clients the company gets – and it has highlighted in conference calls that we’re talking about much more than just tech companies, like Porta Potties and lawn mowing services – the more data it has on where this niche is headed. It will be one of the only companies with this data, and it can use it to make better and more relevant solutions than the competition.
+1.0 points
High Switching-Costs: Let’s focus on RevPro and billing, since those are the major products the company offers. (It has also recently started bundling products). Once a company has everything streamlined on Zuora’s platform, the switching costs are high. Not only that, but Zuora can collect and dissect data for customers that they likely can’t take with them if they choose another provider. In the end, the dollar-based retention rate has consistently stayed above 100% (115% in the most recent quarter), which means customers are sticking with Zuora.
+2 point
Optionality
That 115% retention rate is important. It shows that Zuora customers are not only sticking with the service, but they are adding more functionality over time as well. I’m not certain the company would ever venture outside of offering software (and the requisite professional services that come with helping set them up). But there are so many areas it can touch in the subscription economy. It’s already gotten revenue recognition and billing, but there’s a lot more to be had.
+2.5 points
Skin in the game
Role of founder: Tien Tzuo is still the CEO
+1 point
Insider Holdings As of the last proxy, Tzuo owned 10% of shares outstanding, and insiders held 43% of the company’s shares.
+1 points
Glassdoor: With 260 reviews, Zuora has a 4.6 star rating. Tzuo has a 97% approval rating, 95% would recommend to a friend, and 95% have a positive business outlook.
+1 point
Financial Fortitude
Financial statements
Cash: $175 million
Debt: $12 million
Free Cash Flow: ($33 million)
Having – basically – zero debt is enormously important. Zuora is still investing heavily in its infrastructure and grabbing market share. That said, while I don’t think it will continue losing $33 million for much longer, such a cash outflow does introduce some fragility in the short term if there were an economic downturn.
-0.5 points
Concentration Risk
None
+0 points
Total Score: 10 points
I’ve run companies through this framework for well over a year, but I do it anew every time (I find that doing so…while laborious…forces me to be more aware of the current situation). As such, I don’t have a huge database to draw from. This lands Zuora near the top of the list.
Brian
See all my holdings here: http://my.fool.com/profile/TMFCheesehead/info.aspx
What is Antifragile framework and how has it performed?
Fool One access: http://discussion.fool.com/1255/a-primer-on-the-antifragile-fram…
Rule Breakers: http://discussion.fool.com/1069/a-primer-on-the-antifragile-fram…
Stock Advisor: http://discussion.fool.com/1081/a-primer-on-the-antifragile-fram…
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