Analysts Convinced Of Zuora's Growth Potential Despite Post-Earnings Dip

Software-as-a-service company Zuora Inc ZUO reported fourth-quarter revenue Thursday that was ahead of expectations, and its loss per share was in line.

Despite the fairly positive results, shares of the subscription management platform provider were moving lower Friday.

The Analysts

Morgan Stanley analyst Stan Zlotsky maintained an Equal-weight rating on Zuroa with a $22 price target. 

Cannacord Genuity analyst Richard Davis maintained a Buy rating and $28 price target.

Morgan Stanley: Zuora Lacks Near-Term Upside

Zuora is likely to see mid-20-percent organic growth over the next few years, with operating margin improvement over time, Zlotsky said in a Friday note.

Fourth-quarter billings came in line with the consensus, the analyst said. 

"However, with FY20 op margin guidance midpoint of (16 percent) below our (14 percent) estimate and FCF breakeven unlikely in the near term, our longer-term FCF estimates and DCF are largely unchanged," Zlotsky said. 

The unchanged long-term estimates and limited near-term upside prompted Morgan Stanley to stay on the sidelines, according to the research firm. 

Cannacord: Zuora Capable of Growing Faster, Longer

Zuroa's commentary on metrics such as large deal growth, transaction volumes on the platform and net dollar retention were all positive, Davis said in a Thursday note. 

The analyst said he views positively the slight shift toward add-on product sales as a driver of installed base account growth in 2019, as opposed to the historical trend of volume-driven increases. 

Despite the noise surrounding the ASC 606 guidance, which sets revenue below the midpoint of the current consensus, Davis said that on adjustment, apples-to-apples growth of 28 percent for subscription and 26 percent for total revenue areabove his estimates.

"As the leader in helping firms adopt and extend their subscription operations, Zuora is capable of capable of growing faster for longer than some investors expect." 

The Price Action

Zuora shares were down 12.54 percent at $21.28 at the time of publication Friday afternoon. 

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