Zuora is a leader in the billing/revenue recognition software space. It sells software (as a service) to those enterprises which are moving towards the ‘subscription economy’ and its solutions help these companies to recognise ongoing subscription revenues and properly bill their customers.
Zuora sells two main products - Zuora RevPro (revenue recognition) and Zuora Billing (billing)
In addition, Zuora also sells some ancillary solutions - Zuora CPQ and Zuora Collect
Zuora’s software helps businesses to launch and manage their subscription based services in a fully automated manner.
Approximately, 50% of Zuora’s revenue is generated from the cloud/SaaS sector; media (magazines and newspapers) account for 13% of revenue and the automotive sector is also growing in size.
In terms of customers, Zuora deals with prominent companies in each vertical i.e. TECH - New Relic, Nutanix, NVidia, Box, Zendesk, Symantec and Netapp; MEDIA - HBO, Financial Times, Wall Street Journal, News Corp UK etc; CONSUMER/BUSINESS SERVICES - FedEx, Zillow, Tripadvisor; TRANSPORTATION - GM, Ford, Renault, Peugeot, Toyota and Kia etc.
According to MGI Research, the ‘billing and revenue recognition products’ market is projected to grow by 35% CAGR from 2017 until 2022 ($1.8 billion to $9.1 billion) and Zuora is the clear cut leader in this field.
As far as I’m aware, a few smaller firms offer piece meal solutions but Zuora is 10 years ahead of the pack and nobody comes close.
The company has now bagged 504 enterprise customers (+30% yoy) and each of these are spending more that $100,000 in Annual Contract Value. In addition to the base fees, these customers also pay Zuora based on the volume of invoices issued or revenue recognised on its platform.
I’ve corresponded with Bert Hochfeld and he has confirmed that Zuora doesn’t have any viable competitors and the company is indeed capable of growing revenue at 25-30% CAGR for at least the next decade (or more). He also thinks that it is possible that a big firm may acquire Zuora.
The stock was cut in half during the recent stock market pullback and it is currently trading at ‘just’ 9 times sales. IF Zuora can succeed in compounding its revenue at 25% per annum for 10 years and assuming its Price/Sales multiple eventually contracts to 6; this should translate into a 7 bagger by 2029. Remember, Zuora’s CEO is expecting 25-30% CAGR top line growth for years; if not decades - so a 10-12 bagger within 10-12 years isn’t outside the realms of possibility.
To top it all, Marc Benioff, Paul Allen’s fund (Vulcan Capital) and Benchmark Capital are/were investors and the CEO (Tien Tzuo) still owns 10% of the company.
Given all of the above, I’ve decided to invest 5% of my portfolio in this high-growth business.
Hope this has been helpful; please let me know your if you have questions/comments.