Zuora stock soars in debut: ‘The inflection point of the subscription economy’

Excerpts from the article by Emily Bary on MarketWatch

Zuora Inc.’s management didn’t hesitate about their plans to take the company public even during a period of heavy market volatility, a move that paid off Thursday.

Shares of Zuora ZUO, +3.00% which makes software that helps companies transition to subscription business models, popped 43% in their first day of trading , closing at $20 after listing at $14. That opening price was above the company’s already-raised range. Zuora raised $154 million through the offering.

“Investors realize a bet on us is a bet on the entire subscription economy,” Chief Executive Tien Tzuo told MarketWatch. Zuora claims to have coined the term “subscription economy” to describe how more companies are moving to recurring-revenue models and trying to sell their products as “services.”

Tzuo, a Salesforce.com Inc. CRM, -1.97%  veteran, said his company aspires to have the same long-term success as Salesforce, with aims to deliver 25% to 30% growth over an extended period of time.

He said that Zuora possesses “twin engines of growth” in its billing and revenue-recognition business lines. On the billing side, Zuora provides tools to companies that give them the option to bill customers through a variety of models, including a flat-fee structure or one based on volume. Tzuo believes Zuora is encouraging and enabling companies to think about their business model through the lens of providing services, giving the example of a guitar seller that now offers an app for lessons and bills monthly for it.

“Today marks the inflection point of the subscription economy,” Tzuo said. “Companies should not view business models as selling products but instead as selling services that we should subscribe to.” He cited Spotify Technology SA’s SPOT, -0.07%  recent listing as evidence that the movement has steam.

As for revenue recognition, “all accounting rules are changing for the subscription economy,” Tzuo said, and “it’s not going to get easier” to handle bookkeeping. Zuora offers services that enable businesses to recognize revenue under new accounting standards, which public companies were required to adopt by January.

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