This company turned its earnings call into a skit that involved ‘port-a-potties’
Zuora Chief Executive Tien Tzuo has at least one thing in common with Tesla Inc.’s Elon Musk: the opinion that earnings conference calls can be “boring” and “dry.”
So Zuora ZUO, -18.91% opted to try something different this quarter, holding a “dialogue” instead of the traditional recitation of prepared statements. The basic format was “interviews” between the CEO and CFO about the subscription-software company’s financials as well as campy back-and-forth about the company’s journey since its April initial public offering.
For example, when Tzuo asked Chief Financial Officer Tyler Sloat if he could believe the IPO happened five months ago, Sloat responded that he “still wake[s] up in a cold sweat wondering what city I’m in” but luckily “had enough grapefruit to stay healthy and keep the energy up.”
See also: What Zuora’s CEO had to say on IPO day
The grapefruit reference appeared to be an inside joke, and wasn’t the last one. Sloat at one point asked Tzuo if he was “going to talk about port-a-potties again,” but Tzuo said there would be “no port-a-potties for this call sadly, but we may take a trip to Wauwatosa, Wis.” (That’s where lawn mower company Briggs & Stratton is starting a subscription program for commercial turf.)
“Lawn mowers? Lawn mower subscriptions, this one should be good,” Sloat said.
Later, when Sloat reminded investors that the company would mostly be talking about adjusted numbers and that its acquisition of revenue-recognition company Leeyo closed midway through the year-ago quarter, Tzuo remarked: “That’s a lot of reminders.”
Wall Street didn’t seem too amused by the strange new take on an earnings call, which took place as shares were falling in the aftermarket. Zuora’s stock closed down 19% in Friday’s session, the largest single-day percentage drop in Zuora’s history as a public company.
“While we’re not big fans of the skit-based delivery on the conference call, we remain big fans of the business of Zuora,” Jefferies analyst John DiFucci wrote. He rates the stock a buy and raised his price target to $35 from $28.
Others were more positive regarding the change of pace. “It’s so boring to have them read us the income statement like we’re three-year-olds,” said Canaccord Genuity analyst Richard Davis, referring to the traditional call model that relies on longer prepared remarks. “I thought it was great.”
Davis told MarketWatch that he didn’t know what to expect when the call started, but that he ultimately found Zuora’s call to be “way more informative” than standard ones once the company got to discussing the actual numbers.
“It wasn’t content-free,” he said. “They got a lot of information out in an interesting way.”
Tzuo told MarketWatch that he received “feedback” about the call from DiFucci and others, and that the company was “taking it all in.”
Earlier: Analysts think Zuora is the future, but may not be worth the price
“What everyone agrees is that the current investor call format, where people read a press release, doesn’t work,” he said. “They like that we want to take our earnings calls to a more relevant place with a meaningful and transparent dialogue.”
Tesla’s TSLA, -0.49% Musk has also lamented the state of the quarterly earnings call and earlier this year lashed out at analysts for asking what he deemed to be dull questions. For the past two quarters, he’s taken questions from a YouTube user whom the company calls a representative for retail shareholders.
Netflix Inc. NFLX, -0.89% has played with the standard earnings-call format, moving to a YouTube interview format in which a single analyst peppers executives with questions. Other companies, including Amazon.com Inc. AMZN, +0.52% , typically forego any kind of prepared comments and just move straight into questions from analysts.
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Zuora’s big stock plunge came as the company beat expectations for its most recent quarter. Several analysts thought that while Zuora’s numbers looked good, there had been too much optimism about the stock leading up to the report.
“The firm is literally one of our favorite businesses and management teams, but investors had come unglued with the stock’s recent valuation,” wrote Canaccord’s Davis. The stock was trading at 18 times consensus earnings expectations for the 2018 calendar year and 14 times 2019 estimates, “which seems too rich even for a company that we believe is very likely to grow 25% to 35% for many years to come.”
He told MarketWatch that valuation was the main issue following the report and that he deemed there to be “no cause and effect” between the type of call and the share performance.
He has a hold rating on the stock, though he upped his price target to $28 from $26.
Even with Friday’s decline, Zuora is still up 24.4% in the past three months, as the S&P 500 SPX, +0.01% has gained 7.2%.
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