Why Shares of Zuora Inc. Tumbled Today

What happened

Shares of Zuora Inc. (NYSE: ZUO) slumped on Friday following a fiscal second-quarter 2019 report that beat analysts' expectations. Mixed third-quarter guidance from the software-as-a-service company may be the reason for the decline. The stock was down about 15.9% at 11:15 a.m. EDT.

So what

For the period that ended July 31, Zuora reported revenue of $57.8 million, up 47% year over year and about $3.6 million above the average analyst estimate. Subscription revenue rose 44% to $41.5 million, while the number of customers with an average contract value at or above $100,000 jumped 28% to 474.

Non-GAAP earnings per share came in at a loss of $0.13, up from a loss of $0.46 in the prior-year period and $0.03 better than analysts were expecting. GAAP net loss was $19.6 million, a worse result than the $14.8 million loss in fiscal Q2 2018.

"With every day that passes, more and more companies are joining the Subscription Economy," said CEO Tien Tzuo. "As the leader in this market, we produced strong second quarter results across the board, executing our business model designed for long-term sustainable growth."

Now what

While Zuora's fiscal Q2 results were ahead of expectations, its guidance was more of a mixed bag. The company expects fiscal Q3 revenue of between $58.3 million and $59.3 million, and a non-GAAP per-share loss of between $0.13 and $0.14. That revenue range is higher than the $56.1 million analysts had previously forecast, but the earnings range is below the analysts' consensus estimate of a $0.12 per-share loss.

Valuation may also be a factor. Zuora said it expects full-year revenue to land between $227 million and $230 million, putting its price-to-sales ratio prior to Friday's slump at nearly 16. That sky-high valuation baked in lofty expectations that Zuora didn't quite live up to with its guidance.

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Timothy Green has no position in any of the stocks mentioned. The Motley Fool owns shares of Zuora. The Motley Fool has a disclosure policy.