Morning Report: Zuora is having a killer opening day. Here’s the math.
Zuora priced its IPO above range last night. It sold 11 million shares for $14 apiece, $1 per share higher than its previously-indicated range. According to CNBC, that price valued the company at “just over $1.4 billion.” The firm had previously raised its range from $9 to $11 per share to $11 to $13.
In its first day of trading, Zuora opened at $20 per share, over 40 percent higher than its list price.
Why do we care about Zuora’s opening? Because unlike Mulesoft, the company’s financials were only so healthy.
As we wrote when we ran a dive through Zuora’s financial health, it had a surprisingly high mix of services revenue compared to subscription top line. 40 percent of its last fiscal year’s revenue growth came from services income.
Zuora competitor Chargify noted to Crunchbase News over email that “[t]he magnitude of professional services required to implement and maintain Zuora […] was consistent with what we hear in the market.” Services revenue was gross margin negative in each fiscal year we have numbers for, per the company’s SEC filings.
That fact—stapled to the firm’s stiff GAAP losses, high operating cash consumption, and low cash position—made Zuora an interesting IPO candidate, but not an apparent smashing success. Compare that general riff with the firm’s performance today. The obvious gap between a look at the company’s financial health and its first-day performance could imply healthy demand for new tech shares.
And that’s despite an incredible amount of market chop. Who would have thought!
Wrapping with some loose metrics: a super loose valuation calculation has Zuora worth just under $2 billion as of the time of writing, which gives the firm a trailing revenue multiple (through the end of its fiscal 2018) of nearly 12. That’s cask strength.
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Illustration Credit: Li Anne Dias
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