Zoho Corporation’s co-founder and CEO Sridhar Vembu said that the Software-as-a-Service (SaaS) company is seeing a slowdown in sales at present due to macro-economic challenges, despite reporting a 43 percent YoY growth in net profit for FY22 last week.
During a media interaction on January 31, on being asked if the firm expects to sustain a similar or better growth run rate in FY23, Vembu shared that the growth is slower than last year as clients are taking longer to close large deals.
Not just Zoho Corp but publicly listed IT services behemoths like Tata Consultancy Services (TCS), Infosys, Wipro, HCLTech and others are also expecting longer timelines to close deals as clients are approaching tech spending cautiously amidst inflation, impending recession in the US and ongoing war in Europe.
Vembu said, “We'll see a growth slowdown in sales, so the growth is lower now than a year ago. We're still growing but trying to be cautious in terms of hiring and all… and we have a strong balance sheet. But global economy is what it is. It’s a massive earthquake zone and there are a lot of issues coming. It’s dangerous. What we can hope to do is survive. At Zoho we have built a strong foundation.”
“We are also seeing that the average ticket size, average order size going down. In fact, in our case, we have seen the same number of customers, or a growth in customer count but the average ticket size per customer is slowing. And this is because larger deals are taking time to close while smaller deals are closing quicker,” he added.
Last week Zoho Corporation, in Registrar of Companies (RoC) filings, reported that its net profit was up by 43 percent YoY, touching Rs. 2,700 crore, driven by growth in revenue from its enterprise IT management software business.
Revenue from operations grew 28 percent YoY, coming in at Rs 6,711 crore for FY22. Majority of this revenue came from the North American market, which contributed about Rs 3,198 crore followed by Europe at Rs. 1,505 crore.
Zoho corporation crossed $1 billion in revenue in 2022.
In November, Vembu had said that the India market is growing very fast for the company and he expects it to become its largest market in the next 10 years. Vembu also added that the company plans to open 100 network PoPs (points of presence) around the world in the next five years for providing users with a faster network, and also double investment in technologies such as blockchain and artificial intelligence.
Zoho is currently present across 150 countries with a user base of 80 million.
On achieving profitable growth
Vembu’s 25-year-old company was completely bootstrapped, yet continued to be profitable. It has been cautious in terms of hiring or setting way too farfetched growth targets over the years, he said.
Meanwhile, growth stage and unicorn startups in India continued to bleed in 2022 and laid off employees in heavy numbers after a period of unexpected growth and over-hiring in the pandemic-hit years.
Vembu believes turning profitable and sustainable growth for such startups are in fact possible if they decide to set realistic growth targets.
Vembu said, “We are assuming that money will be available on very easy terms to raise, and was never paid. I always felt that there wasn't any discipline. But anyway, it's very, very rare and difficult to pay all that, which means that owners should start thinking about building profitable products. It is possible to start with; and we may have to scale down on growth expectations, scale down on exit expectations, and valuations, all of that.”
He added, “It's very possible to build a sustainable business. We are not just managing Zoho, we are still building new brands and launching new products. And most products start out very fledgling, just like startups, and we're still able to do this. But our expectations, we keep it very appropriate. We don't want to spend $100 million on a new product immediately.”