Please ensure Javascript is enabled for purposes of website accessibility

Here's the Real Reason Zuora Stock Was Down 10% in February

By Jon Quast - Updated Mar 6, 2020 at 9:17AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

And no, it wasn't the coronavirus.

What happened

In the fastest 10% drop in history, major indices including the S&P 500 sold off during the last week of February as fears of a global economic downturn mount. When the dust had settled, shares of subscription-service enabler Zuora (ZUO -0.43%) were down 10.2%, according to data provided by S&P Global Market Intelligence.

Zuora didn't report earnings in February, nor was it blasted by some famous short-seller. The only newsworthy event for the company in February came when CEO Tien Tzuo presented at the JMP Securities Technology Conference. But what he said there hardly justifies the stock's sharp decline.

A young woman makes a face communicating surprise.

Image source: Getty Images.

So what

On Feb. 25, Tzuo gave a fireside chat at the conference in San Francisco. He discussed real-life examples of how traditional product companies can benefit from adopting a subscription-service mentality. Recent corporate structure changes were also explored. But the conversation inevitably turned to COVID-19.

Tzuo shared that Zuora has about 100 employees based in China. They are currently working from home to help prevent the spread of the coronavirus. Tzuo pointed out that, as software engineers, working remotely isn't an unreasonable task. And he added that the company hasn't seen a meaningful drop in productivity in China during this time.

But investors may have simply focused on the fact that Zuora is technically being impacted by the coronavirus, as 100 workers are now working from home.

Now what

The real reason Zuora sold off 10% is fear. Fear can give investors a short-term panic mentality, resulting in irrationality. Remember that the company sells software as a service. And as Tzuo pointed out in his chat, it has hardly any cross-border activity; most of the company's customers are served by local teams. If ever there were a company unaffected by the coronavirus, it's Zuora. 

I'm not saying it is necessarily a top small-cap stock worth buying right now. But for those already looking to buy Zuora, a fear-based pullback is the good kind of pullback to buy into.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Zuora Stock Quote
$9.26 (-0.43%) $0.04

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/29/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.