Interlocking puzzle pieces set on the tops of buildings, indicating an acquisition

Zuora to Acquire Zephr for $44M in Cash

An additional $6M could be paid out if certain ARR growth objectives are met

Last week, subscription management platform Zuora announced they will acquire Zephr for $44 million in cash upon the closing of the deal. If the company reaches certain ARR growth objectives by the end of Zuora’s fiscal year, additional earnout consideration of up to $6 million could also be part of the deal. Zuora stated in the announcement they believe Zephr will contribute about $5 million to Zuora’s annual recurring revenue and $2 million in subscription revenue. The deal is subject to customary regulatory approvals and closing conditions and is expected to close early next month.

About Zuora

Zuora is a cloud-based subscription management platform that processes nearly 9 billion requests each month that utilize the company’s identity management, intelligent trials, dynamic paywalls, entitlements management, and decision engine tools. Along with data from Zuora’s billing, collect and revenue systems, the company processes tens of billions of transaction volume every quarter.

About Zephr

Founded in 2018, Zephr is a subscription experience platform that works with global digital publishing and media companies, including News Corp, McClatchy and Bauer. They are already partnering with Zuora and have some shared clients, and this acquisition will allow Zuora to expand their suite of products serving the subscription industry and further help their clients drive subscriber conversion, retention and growth.

Zuora and Zephr logos displayed on white background
Source: Zuora

CEO comments

“The winners in the media industry are those continuously innovating around new services, bundles, and offers. And where the media industry goes, other industries will follow,” said Tien Tzuo, founder and CEO of Zuora in an August 24, 2022 news release. “This is what combining Zuora and Zephr is about. We’re thrilled to welcome our fellow ZEOs into the family.”

Zephr co-founder and CEO James Henderson also commented on the acquisition.

“Our focus has been on giving our customers the agility they need to deliver the experiences that modern customers expect – it starts from the first digital interaction, to conversion, to renewal,” said Henderson. “It was a clear decision to join Zuora to accelerate where our platform is headed, and empower all of our customers to nurture and monetize their subscriber relationships.”

Zuora’s second-quarter financials

For the second quarter of fiscal year 2023, Zuora reported the following highlights:

  • Total revenue was $98.8 million, a 14% increase year-over-year.
  • Subscription revenue was $83.8 million, a 17% increase year-over-year, and nearly 85% of total revenue.
  • GAAP net loss for the quarter ended July 31, 2022 was $29.9 million, or $0.23 per share.
  • Zuora reported that it has 745 clients with annual contract value over $100,000.
  • Annual recurring revenue for the quarter was $337.6 million, compared to $280.2 million for the same quarter last year.
  • The company ended the quarter with $449 million in cash and cash equivalents.

Third-quarter outlook

Zuora provided the following outlook for the third quarter:

  • Subscription revenue between $85.5 million and $86.5 million
  • Professional services revenue between $14.0 million and $15.0 million
  • Total revenue between $99.5 million and $101.5 million
  • Non-GAAP loss from operations between $(2.5) million and $(1.5) million
  • Non-GAAP net loss per share between $(0.06) and $(0.05)

Insider Take

This is a sweet deal for Zuora and Zephr. Because they have already partnered before, and they share some clients, they know each other well enough to know how their products and services complement each other. Zephr is strong in the media and publishing space, which is one of Zuora’s key verticals. This will help Zuora better serve clients in that space as well as expand its product suite to serve other industries. This is an exciting match. We look forward to seeing the acquisition as it evolves.

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