Earnings Results: Zuora stock sinks after outlook comes up short

Shares of Zuora ZUO, +6.10%, which makes software that enables businesses to run subscription offerings, were down 17% in after-market trading after gaining 6.1% in Wednesday’s regular session and 12% in Tuesday’s session.

Chief Executive Tien Tzuo told MarketWatch prior to Zuora’s earnings call that the company anticipates the COVID-19 crisis will drive a longer-term shift toward subscription business models, even if that doesn’t immediately manifest in the company’s results, given a greater interest in recurring revenue coming out of the pandemic.

“Interest in subscriptions has never been higher,” he said. “It’s going to take time to translate that into customers and revenue but we’re really busy and feel good about the future.”

Tzuo also said that Zuora has seen some negative impacts from the pandemic, including from travel- and hospitality-related customers, though he believes that the worst of those effects are in the past.

Zuora anticipates $73 million to $75 million in revenue for the fiscal third quarter, a view that came up short of the FactSet consensus, which is looking for $75.5 million in October-quarter revenue. Zuora also expects an adjusted loss per share of 4 cents to 5 cents, while analysts surveyed by FactSet had been modeling 5 cents.

Tzuo said that he’s “feeling good about the [fiscal third-quarter] outlook” and noted that the stock had “a bit of a run up this week” ahead of the report. “We’re focused on the long term,” he said.

The company exceeded expectations with its fiscal second-quarter results, delivering revenue of $75 million, up from $69.7 million a year earlier, while analysts were expecting $73.5 million. After adjusting for stock-based compensation and other expenses, Zuora broke even on a per-share basis, after it posted a 9-cent adjusted loss per share a year prior. The FactSet consensus called for a 7-cent adjusted loss per share.

“We’ve done a really nice job of managing expenses from the standpoint of being very judicious,” said Todd McElhatton, who recently took over as chief financial officer. He noted that Zuora has been able to eliminate costs thanks to virtual events and a lack of employee travel expenses. While some of those costs may come back when the COVID-19 situation improves, McElhatton expects that some events and meetings will stay virtual even in a more normalized world.

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Zuora shares have rallied 39% over the past three months as the S&P 500 SPX, +1.53% has gained 9.5%.