Goldman Sachs (NYSE:GS) has reiterated its Buy rating on shares of Zuora Inc . (NYSE: NYSE:ZUO) with a steady price target of $13.00. The firm's analysis followed Zuora's reported second-quarter fiscal year 2025 earnings, which surpassed consensus expectations for both revenue and operating income.
Zuora's success in this quarter was attributed to improved monetization strategies and securing high-value new contracts, despite experiencing a sequential decline in its customer count within the $250K+ Annual Contract Value (ACV) group for the second consecutive quarter.
Zuora's recent performance was impacted by challenging operating conditions and mergers and acquisitions activity affecting some clients. However, the company has responded by raising its full-year guidance for revenue and profitability.
In contrast, Zuora has adopted a more cautious stance on the growth of its Annual Recurring Revenue (ARR) and Net Revenue Retention (NRR) towards the year's end, acknowledging uncertainties surrounding the timing of significant deal closures.
Goldman Sachs views Zuora's conservative approach to ARR and NRR projections as a prudent adjustment given the current business climate. The firm believes that as market conditions improve, Zuora's high-quality customer base will enable it to capitalize on emerging opportunities.
Management's commitment to the Rule-of-30 principle—which emphasizes expanding operating margins in challenging revenue environments—and innovation in Total Monetization categories, such as consumption-based models, are expected to support the company's growth over the long term.
In other recent news, Zuora reported impressive second-quarter results, with adjusted earnings per share standing at $0.19, significantly surpassing the analyst consensus estimate of $0.10.
The company's revenue was $115.4 million, exceeding expectations of $112.62 million and marking a 7% year-over-year growth. Notably, Zuora's subscription revenue, a major component of its top line, rose 9% year-over-year to reach $104.1 million. Furthermore, the company reported substantial improvements in profitability, with its non-GAAP operating margin expanding to 22% from 9% in the comparable quarter of the previous year.
In light of these developments, Zuora has raised its full-year fiscal 2025 guidance. The company now anticipates an adjusted EPS of $0.56-$0.58 on revenue of $455.5-461.5 million, figures that surpass Wall Street forecasts. For the upcoming third quarter, Zuora projects an adjusted EPS of $0.11-$0.12 on revenue of $115-117 million, also ahead of analyst estimates.
InvestingPro Insights
As we delve into Zuora Inc.'s (NYSE: ZUO) financial health and market performance, it's clear that the company is navigating through a transformative phase. With a market capitalization of $1.26 billion, Zuora's strategic initiatives are pivotal in driving future growth. The company's ability to hold more cash than debt on its balance sheet is a testament to its solid financial positioning, which is an essential factor for investors considering long-term investments. This is underscored by the fact that Zuora's liquid assets exceed its short-term obligations, providing a cushion against market volatility.
Despite not being profitable over the last twelve months, analysts are optimistic, predicting that the company will turn a profit this year. This anticipated shift towards profitability aligns with Goldman Sachs' positive outlook on the company. Additionally, with a Price / Book multiple of 9.04, Zuora trades at a premium, reflecting investor confidence in its asset value and future growth potential. Investors can find more InvestingPro Tips, including insights on revenue growth and profitability forecasts, by visiting InvestingPro's dedicated section for Zuora at https://www.investing.com/pro/ZUO, which lists an additional 7 tips for a comprehensive analysis.
Understanding the nuances of Zuora's performance, such as its revenue growth of nearly 8% over the last twelve months, can offer investors a clearer picture of the company's trajectory. With Goldman Sachs' reaffirmed Buy rating and a price target of $13.00, these InvestingPro Data points and Tips enrich the analysis of Zuora's potential in the evolving market landscape.
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