According to a Business Wire report published recently, the global cloud-based IT Service Management market is estimated to grow 8.8% annually over the next four years. Another report published by Market Research Future estimates the global help desk automation market to grow to $11 billion by 2023, recording an annualized growth rate of over 33% during the period 2017 through 2023. Freshdesk, now called Freshworks, and Zendesk (NYSE: ZEN) are both capitalizing on this growth trend.
For the third quarter of the year, revenues for Zendesk grew 38% over the year to $154.8 million. It ended the quarter with a GAAP net loss of $34.1 million, compared with a loss of $25.9 million recorded a year ago. On an adjusted basis, EPS came in at $0.09 for the quarter. The Street was looking for revenues of $152.1 million and an EPS of $0.04.
Among key metrics, its paid customer accounts grew 3% sequentially and 17% over the year to 133,700. Zendesk Support now has 72,100 paid customer accounts, with 1,600 added during the third quarter. Zendesk Chat has 46,800 paid customer accounts after losing 800 during the quarter.
For the current quarter, Zendesk expects revenues of $164-$166 million with a GAAP operating loss of $39-$41 million. It expects to end the current year with revenues of $591-$593 million and a GAAP operating loss of $141-$143 million. It is targeting on delivering a break-even year on a non-GAAP basis. The Street was looking for revenues of $165.4 million for the quarter and of $591.7 million for the year.
Zendesk is targeting to reach $1 billion in annual revenue and profitability by 2020. To help reach that goal, it has been adding several small players to its portfolio. Earlier this quarter, it announced the acquisition of FutureSimple, a provider of customer relationship management and sales productivity platform called Base. Terms of the deal were not disclosed.
Founded in 2009, Base provides integrated tools for communication, lead scoring, reporting, and other salesforce-focused activities. It is known for its mobile and user-friendly capabilities and was positioned by Gartner as a Visionary in the July 2018 Magic Quadrant for Sales Force Automation. The service is currently used by more than 5,000 customers globally across industries. Zendesk had already worked with Base in the past and launched an integration between its products. Released last year, the integrated offering brought together support and sales information about customers. Prior to the acquisition, Future Simple was privately held and had raised $53 million from investors including Hyde Park Angels, I2A Fund, OCA Ventures, and Index Ventures. Its valuation and other detailed financials are not known.
Zendesk’s stock is currently trading at $54.40 with a market capitalization of $5.7 billion. It had touched a 52-week high of $72.76 in September this year. It has been climbing from the 52-week low of $31.90 that it was trading at nearly a year ago. Like other stocks on the market, Zendesk’s stock has taken a tumble last month.
Meanwhile, rival Freshworks is continuing to grow by adding newer product lines to its service. Founded in 2010 as a cloud-based customer support service, San Bruno, California and Chennai-based Freshworks has become much more than that. Freshworks continues to expand its offerings to include IT services management software Freshservice, CRM software Freshsales, call center software Freshcaller, applicant tracking software Freshteam for recruiters, customer messaging software Freshchat, and conversion optimization suite Freshmarketer.
Its latest addition has been Freshworks 360, which promises to deliver a complete customer engagement experience. The platform claims to seamlessly integrate the various aspects of the customer engagement experience including sales, support, and marketing software to help teams within organizations communicate more effectively, and to help them keep track of the full 360º view of their customer data. It integrates services across different media including phone, chat, and social channels.
More recently, the company is counting on AI to deliver growth. Earlier last month, it announced the release of Freddy, an Omnibot AI engine that leverages Google AI technology to help businesses resolve customer issues more effectively and efficiently through a mix of human and machine-based voice interactions. It offers contextual self-service to customers and helps onboard new agents with ease by proactively and systematically troubleshooting customer queries.
Freshworks remains privately held so far. It has raised $249 million in funding so far from investors including Accel Partners, Sequoia Capital India, CapitalG, and Tiger Global Management. Its last round of funding was held in July this year when it raised $100 million at a $1.5 billion valuation. An earlier round held in November 2016 had valued the company at $700 million. The company plans to use the recently acquired funds for international expansion. It has not divulged detailed plans on going public, but definitely has them in the pipeline.
Being privately held, Freshworks does not disclose detailed financials. It has, however, revealed that it crossed $100 million in annual recurring revenues in June this year. It continues to operate at losses.