INSUBCONTINENT EXCLUSIVE:
What the most successful pure SaaS company of all time? The answer is Salesforce, and it no contest — the company closed the year on an
$18 billion run rate, placing it in a category no other company born in the cloud can touch.
That Salesforce is on such an impressive run
rate might suggest that reaching a billion in revenue is a fairly easy proposition for an enterprise SaaS company, but firms in this
category grow or drive revenue like Salesforce
Some, in fact, find themselves growing much more slowly than anyone thought, but keep slugging it out as they inch steadily toward the $1
This happens to public and private SaaS companies alike, which means that we can look at few public ones thanks to their regular earnings
disclosures.
It a good time to look back at the year and analyze a few firms that should reach the mythical $1 billion in revenue at some
Today we&re examining Zuora, a SaaS player focused on building and managing subscription-based services
GuideWire, a company transitioning to SaaS with big ambitions and Box, a well-known SaaS player caught somewhere between big and a
billion.
Zuora: betting on SaaS
We&ll start with the smallest company that caught our eye, Zuora
We&ll proceed from here going up in revenue terms.
Zuora is as pure a SaaS company as you can imagine
The San Mateo-based company raised nearly a quarter billion dollars while private to build out the technology that other companies use to
help build their own subscription-based businesses
To some degree, Zuora success can be viewed as a proxy for SaaS as a whole.
However, while SaaS has chugged along admirably, Zuora has seen
its share price fall by more than half in recent quarters.
At issue is the firm slowing growth:
In the quarter detailed on March 21, 2019,
Zuora subscription revenue growth slowed to 35% compared to the prior year period
Total revenue growth grew an even slower at 29%.
In the quarter announced on May 30, 2019, Zuora subscription revenue grew 32% while its
total revenue expanded 22%.
Moving forward in time, the company quarter reported on August 28, 2019 saw subscription revenue growth of 24%
and total revenue growth of 21% compared to the year-ago quarter.
Finally, in its most recent quarterly report earlier this month, Zuora
reported marginally better 25% subscription revenue growth, but slower total revenue growth of 17%.
Why is Zuora growth slowing? There no
single reason to point out
Reading through coverage of the firm earnings report reveals a number of issues that the company has dealt with this year, including slow
sales rep rampand some technology complaints
Add in Stripe meteoric rise (the unicorn added tools for subscription billing in 2018, expanding the product to Europe earlier this year)
and you can see why Zuora has had a tough year.
Adding to its difficulties, the company has lost more money while its growth has slowed
Zuora net loss expanded from $53.6 million in the three calendar quarters of 2018
That rose to $59.9 million over the same period in 2019
But the news is not all bad.
In spite of these numbers, Zuora is still growing; the company expects around $276 to $278 million in revenue
in its current fiscal year and between $206 and $207 million in subscription top-line revenue over the same period.
At the revenue growth
pace set in its most recent quarter (17% in the third quarter of its fiscal 2020) the company is eight years from reaching $1 billion in
However, Zuora rising subscription growth rate in the same period is very encouraging
And, the company cash burn is declining
Indeed, in the most recent quarter Zuora operations generated cash
That improvement led to the firm free cash flow improving by half in the first three calendar quarters of 2019.
It also has pedigree on its
Founder and CEO Tien Tzuo was employee number 11 at Salesforce when the company launched in 1999
He left the company in 2007 to start Zuora after realizing that traditional accounting methods designed to account for selling a widget
wouldn&t work in the subscription world.
Zuora subscription revenue is high-margin, but the rest of its revenue (services, mostly) is not
So, with less thirst for cash and modestly improving subscription revenue growth, Zuora is still on the path towards the next revenue
threshold despite a rough past year.
Guidewire: going SaaS the hard way
