According to a recent Market Research report, the global Helpdesk Automation Market is expected to grow to more than $10 billion by 2022, recording an annualized growth rate of 32% over the next few years. Earlier this week, Billion Dollar Unicorn Zendesk (NYSE: ZEN) reported its fourth quarter results that surpassed all market expectations and sent the stock soaring to year-high levels.
Zendesk’s revenues grew 41% over the year to $172.2 million, ahead of the market’s forecast of $165.5 million. It ended the quarter with a net loss of $33.25 million, compared with a net loss of $24.98 million reported a year ago. On an adjusted basis, EPS came in at $0.10 per compared with the market’s estimated $0.03 for the quarter.
Among key metrics, Zendesk’s paid customer accounts grew to 136,600 at the end of the fourth quarter, compared with 133,700 a quarter ago and 118,900 a year ago. Zendesk Support added 1,500 new customers to end the quarter with 73,600 paid customer accounts. Other Zendesk products saw paid customer accounts grow by 2,100 to 16,900.
Nearly 40% of Zendesk’s Support monthly recurring revenue in the quarter came from customers with 100 or more Support agents. This number was flat over the previous quarter but recorded an impressive 38% growth over the previous year. The number of contracts with annual values of $50,000 grew 6% over the year and the average contract value increased 60%.
Zendesk ended the year with revenues growing 39% to $598.7 million. It reported an operating loss of $137.9 million and a non-GAAP operating income of $3.5 million for the year.
For the current quarter, Zendesk expects revenues of $178-$180 million with a GAAP operating loss of $42-$44 million. It expects to end the current year with revenues of $795-$805 million with a GAAP operating loss of $149-$154 million. The market was looking for revenues of $172.8 million for the quarter and $779.3 million for the year.
Zendesk Competes with Salesforce.com
Last quarter, Zendesk expanded its presence in the CRM market with the release of its platform Sunshine. Zendesk Sunshine has been built on AWS and allows organizations to connect and understand their customer data, irrespective of where the data resides. It gives the developers the ability to build and deploy customer apps and services faster. Sunshine leverages AWS’s security, scalability, and reliability to deliver a more flexible CRM platform. It will enable organizations to quickly and easily move data between Sunshine and their systems and applications.
Zendesk has been expanding its relationship with AWS and is working on releasing a number of solutions and connectors to AWS to simplify data access for developers and IT professionals. Besides the Zendesk Marketplace solution with Amazon Connect, Sunshine will be able to connect with other AWS services including Amazon Kinesis, Amazon Simple Storage Service, Amazon Redshift, Amazon SageMaker, and Amazon Virtual Private Cloud. Sunshine will be available free of charge to Zendesk’s enterprise users.
It also recently launched Zendesk Sell, a sales force automation tool that is focused on driving productivity, improving processes, and enhancing pipeline visibility for sales teams. It has been launched with integration for Zendesk Support so that support agents can get more context from the sales process and are able to notify sales of opportunities identified during a support conversation. Zendesk Sell will be available for use at a price of $19 per user per month and appears to be an attractive way to upsell to its existing customers.
The new tools suggest that Zendesk is diversifying from its core customer service mission to a broader customer management business. According to its management, Sunshine is Zendesk’s attempt to move to a platform play.
Zendesk has delivered these new tools by leveraging the acquisition of FutureSimple last year. FutureSimple is a provider of customer relationship management and sales productivity platform called Base, which has over 5,000 customers and an estimated $20M annual revenue. Founded in 2009, Future Simple was privately held and had raised $53 million from investors including Hyde Park Angels, I2A Fund, OCA Ventures, and Index Ventures prior to the acquisition. It was best known for Base that provided an integrated service for communication, lead scoring, reporting, and other salesforce-focused activities.
Zendesk is counting on the release of its sales-focused tools to help it compete with Salesforce and Microsoft. Salesforce had tried to acquire Zendesk in 2011, but the acquisition talks fell through.
On the other hand, its rival Freshworks has acquired nine smaller capital-efficient startups over the past few years. Click here for a detailed analysis of its acquisition strategy. Its recent acquisitions were in 2017 when it acquired smaller SaaS companies including Zarget, JoeHukum, and Pipemonk. Zarget delivered a SaaS-based conversion rate optimization service that provided SMBs with a comprehensive solution. Zarget had raised $7.5 million prior to the acquisition. JoeHukum was a virtual assistant that had only raised a seed round prior to the acquisition. Finally, Pipemonk, which had raised $2.1 million prior to the acquisition, had built a data integration platform that seamlessly synchronized and moved data between various cloud business apps. Freshworks has used the capabilities it acquired through these smaller acquisitions to expand its product offerings.
Freshworks’ revenue for fiscal year 2017-18 ending March 2018 for India was INR 259.3 crore ($36.5 million), up 30% from INR 199.2 crore (~$28 million) in 2016-2017. It has raised $249 million in funding so far and last raised $100 million in July 2018 at a valuation of over a billion dollars. Freshworks is headquartered in San Bruno, California and has subsidiaries in UK, Europe, India, and Australia. It is a private company and does not disclose its global consolidated financials.
What other companies do you think Zendesk and Freshworks could look to acquire?
Zendesk’s stock is currently trading at $72.40 with a market capitalization of $7.75 billion. It had touched a year high of $78.85 earlier this week. The stock has climbed from the year low of $37.81 that it had fallen to nearly a year ago.
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This segment is a part in the series : Cloud Stocks