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Zendesk and Freshdesk Jump on AI Bandwagon

Posted on Tuesday, Jun 28th 2016

According to Gartner, the global customer relationship management (CRM) software market is estimated to have grown 12.3% to $26.3 billion in 2015. SaaS revenue grew 27% year over year, more than double overall CRM market growth in 2015. Salesforce is the largest player with about 20% of the global CRM market. Zendesk and Freshdesk are two players that specifically compete in the customer support part of the CRM market.

Zendesk’s Financials

First quarter revenue at Zendesk (NYSE: ZEN) increased 62% over the year to $68.5 million. GAAP net loss was $27.2 million, or $0.30 per share. Non-GAAP net loss was $7.3 million or $0.08 per share. Analysts expected loss of $0.10 on revenue of $64 million.

At the end of the first quarter, Zendesk had over 75,000 paid customer accounts. Accounts with 100 seats or more grew to 33% of its monthly recurring revenue compared to 25% a year ago.

For the second quarter, Zendesk expects to report revenue of $71 million to $73 million, GAAP operating loss of $28 million-29 million, and non-GAAP operating loss of $7.5 million-8.5 million. Analysts expect loss of $0.08 on revenue of $72.38 million.

For the full year 2016, Zendesk expects to report revenue of $300 million-$305 million, GAAP operating loss of $111 million-112 million, and non-GAAP operating loss of $27 million-28 million. Analysts expect loss of $0.30 on revenue of $303.45 million.

Zendesk is targeting to reach $1 billion in annual revenues and profitability by 2020. To reach this goal, it is focusing on three things – elevating its brand, developing or becoming a multiproduct company, and further growing its reach into the enterprise. Annual revenue in 2015 was $209 million, up 64%.

ZenDesk’s Enterprise Focus

For its enterprise customers, Zendesk made available in March a machine learning and predictive analytics feature called Satisfaction Prediction. Satisfaction Prediction leverages machine learning to predict how likely a ticket is to receive a good or bad rating, helping organizations take action to ensure positive outcomes. Pinterest, Digitec, and Easy Taxi are among the first users of the feature.

Zendesk also plans to roll out a messaging product by early 2017. At Facebook’s F8 conference in April, it announced a messaging platform to help its customers interact with consumers via social media. also plans a similar product using Facebook’s messenger.

At the recent Google I/O conference, Zendesk announced an integration with Google Play that will allow businesses to respond to app reviews and turn them into proactive customer conversations.

Zendesk’s Management Changes

Zendesk has added more members to its management team. Bryan Cox, former CRO at VMware, was appointed as its first Chief Revenue Officer, and Tom Keiser, former CIO of Gap, was appointed as its first Chief Information Officer. Elena Gomez, former senior vice president of finance and strategy at Salesforce, will be replacing Alan Black as its new Chief Financial Officer.

Zendesk’s stock is currently trading at $24.28 with a market capitalization of $2.23 billion. It touched a 52-week high of $28 this month after UBS initiated coverage with a Buy rating. It hit a 52-week low of $14.38 in February when most CRM stocks plummeted.

UBS analyst Brent Thill set a price target of $32 and noted, “Zendesk does not plan on an acquisition spree to hit its target. Zendesk does plan on selling more products to larger companies and enterprises, expanding from its base of smaller and midsize businesses. Zendesk will likely expand into sales or marketing software.”


Freshdesk has recently launched Freshsales, a CRM solution and sales system that includes various capabilities required for sales representatives working in a tough environment. It combines integrated customer and prospect management tracking with, email/phone integration, user behavior tracking, automated lead scoring, a visual sales pipeline, and reporting. The leader in this space is and Zoho also has a key presence, along with other players like Microsoft that just bolstered its position by acquiring LinkedIn. Freshdesk’s product is also designed for smart phones on iOS and Android operating systems and initially targets small and midsize businesses. Subscription is free for basic version installations of up to 10 users, and more functional versions are priced at $12, $25, and $49 per user per month. The price-point puts them in direct competition with Zoho.

Over the past year, Freshdesk has made five acquisitions for undisclosed amounts. These include Airwoot in April 2016 for its Artificial Intelligence technology, Framebench Technologies in February 2016 for its collaboration technology, mobile-first user engagement platform Konotor in December 2015, social recommendation app Frilp in October 2015, and video chat platform in August 2015. It is interesting to note that the Airwoot acquisition follows Zendesk’s release of the Satisfaction Prediction feature in March. We can expect some competition from Freshdesk in the AI space. Besides Salesforce and Freshdesk, Atlassian (NASDAQ: TEAM), which recently went public is also a challenger for Zendesk.

Freshdesk’s Financials

Freshdesk has over 80,000 customers around the world including 3M, Honda, Bridgestone, Hugo Boss, University of Pennsylvania, Toshiba, Hugo Boss, Good Reads, and Cisco. The focus of the company, however, has been in the small business space. The company forecasts over $40 million in ARR this year. Revenue has doubled in the last year.

Freshdesk has raised a total of $95 million from investors including Tiger Global, Accel Partners, and Google Capital. It last raised $50 million in April 2015 at a valuation of $500 million while an earlier round for $31 million valued it at $250 million.

Valuations in the private market have been extremely frothy in the past couple of years, and Freshdesk has benefited from that general phenomenon. However, as a 1M/1M company, we hope it sticks to the fundamentals orientation that we espouse as a core philosophy.

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