Zuora (ZUO -0.22%) helps businesses transition from one-time product sales to a subscription-based business model by providing software that makes this change hassle-free. Its offerings have gained popularity as they allow businesses to enjoy a recurring revenue stream, which often allows for better cash flow management and stability.

With Zuora championing the subscription economy, it shouldn't surprise investors that the company's software products are offered on a subscription basis. Its portfolio of software-as-a-service (SaaS) products is built specifically to handle all the intricacies of recurring subscription business models.

With this in mind, let's look at how Zuora has positioned itself with innovative products that allow for both stable revenue and attractive growth opportunities.

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Image source: Getty Images.

An expanding market

Before we look at Zuora's specific products, consider just the potential of the market this company is playing in. Some key examples of subscription-based businesses include Spotify, Netflix, Microsoft, and many more. The growing popularity of the subscription economy is clear in its expanding market size -- the last seven and a half years have seen the subscription economy grow over 350%, according to the company.

So how exactly does Zuora tap into this fast-growing market?

Flagship product No. 1: Zuora Billing

Zuora Billing helps customers monetize and manage subscription billings. Users can use leverage the application to manage their product and pricing strategy while automating recurring orders, invoicing, and collections. This allows customers to focus on building their subscription-based businesses by removing the hassles that come with transitioning to this business model.

The Zuora Billing platform forms the base for any company shifting to a subscription-based model, while other applications such as Zuora Configure Price Quote (CPQ) and Zuora Collect can be added as subscription revenue increases. These applications help to further ease the deal configuration, pricing, and payment collection processes.

In fiscal 2020, Zuora reported top-line growth of 17%, while subscription revenue was up 25% year over year. The company serves a variety of industries, with more than 50% of Zuora's customers falling outside the tech sector, including transportation services, consumer services, business services, manufacturing, media, and telecom. Notable names include blue-chip companies such as Caterpillar, FedEx, NVIDIA, Harley Davidson, and many more.

In its latest earnings report, the company noted that customers with annual contract values (ACV) over $100,000 grew to 624, up 19% year over year. Additionally, about 225 of Zuora's customers generate annual revenue above $1 billion, and CEO Tien Tzuo highlighted the growth opportunities from these larger customers during the earnings call.

Flagship product No. 2: Zuora RevPro

After the basic structure is put in place and the transition takes shape, Zuora RevPro, a revenue recognition automation solution, is another important offering. RevPro is focused on the management and accounting of subscription revenue, which is more nuanced compared to traditional sales.

RevPro ensures that customers can track their subscription revenue in accordance with the latest accounting rules. Zuora actually acquired Leeyo in 2017 to ensure that its customers are not left in the dark when it comes to revenue recognition and compliance.

During the fiscal fourth quarter, Zuora celebrated the implementation of its RevPro solution with major customers such as Siemens and LivePerson. The momentum behind these customer wins and launches is expected to continue in the first quarter as well.

In terms of pricing, Zuora charges an annual platform fee along with fees based on the volume flowing through the platform. This means that customers pay a flat fee and any additional fees are consumption-based. This model is a win-win as customers pay based on usage, thus reducing their costs, while Zuora enjoys stability and a long runway as its customers grow.

Foolish summary

Zuora has positioned itself to ride out the growth of the subscription economy. Looking ahead, Zuora has already attracted a slew of big businesses to its platforms, and the company stands to benefit from this over time. Tzuo said during the latest call:

In addition to signing on hyper-growth disruptive companies, it's important for us to become the subscription platform of choice for the world's largest companies. And then, as their revenue mix shifts more and more to subscriptions, we benefit. That's why we believe that when we reach $1 billion of revenue, our customer count will be closer to 2,000 companies than, say, to 10,000.

Near term, management is guiding to fiscal 2021 revenue growth of 10% at the midpoint of the range. And management plans to be approaching free cash flow breakeven by the fourth quarter this year.

By staking its claim right in the center of the subscription trend, Zuora has a bright future ahead of it with a business that grows hand in hand with customers.