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Zendesk Next Targets WhatsApp Users

Posted on Thursday, Aug 15th 2019

According to a recent Marketers Media report, the global helpdesk automation market is estimated to grow 33% annually to $11 billion by 2023. Earlier this month, Zendesk (NYSE: ZEN), a leading player in the market reported its second quarter results that were well received by the market.

Zendesk’s Financials

Zendesk’s revenues grew 37% over the year to $194.6 million, ahead of the market’s forecast of $192.5 million. Adjusted EPS was $0.05 compared with previous year’s $0.03 and the market’s estimated $0.05.

Among key metrics, Zendesk’s paid customer accounts grew to over 149,000 compared with 145,600 at the end of the first quarter. Zendesk Support now has 77,100 paid customer accounts, up 1,500 in the second quarter. Zendesk Chat saw its customer accounts fall by 1,000 to 44,300. Customers on other Zendesk products grew by 2,800 to 27,500.

By region, the US accounted for nearly 52% of revenues for the quarter, EMEA brought in 29%, APAC contributed 11% and other geographies accounted for 9% of revenue. Its performance in the EMEA and APAC markets was below its expectations. It will continue to monitor the macroeconomic factors in these regions.

At the end of the quarter, 42% of Zendesk’s Support annual recurring revenue came from customers with 100 or more Support agents, compared with 40% at the end of the first quarter. Its dollar-based net expansion rate was 117%.

For the current quarter, Zendesk expects revenues of $206-$208 million with a non-GAAP operating income of $2-$4 million. It expects to end the current year with revenues of $807-$811 million with a non-GAAP operating income of $16-$19 million. The market was looking for revenues of $207 million for the quarter and $808.5 million for the year.

Zendesk’s AWS Expansion

Like earlier quarters, Zendesk continued to expand its relations with AWS. Last month, it announced the release of Zendesk Events Connector for AWS’s EventBridge. The Zendesk Events Connector will allow companies to quickly and easily connect customer experience data to the AWS services that developers already use to improve their understanding of the customer journey. It is a simple, scalable way to stream near real-time data changes from Zendesk into AWS. It will further drive innovation as companies will be able to build better customer experiences by leveraging customer information with machine learning capabilities, integrating security and compliance tools, and even perform custom analytics through services such as AWS Lambda, Amazon Simple Storage Service (Amazon S3), Amazon Kinesis, and Amazon SageMaker.

Zendesk’s Smooch Acquisition

Zendesk has been acquiring smaller companies to drive growth. As part of this initiative, earlier this summer, it announced the acquisition of an omnichannel messaging platform Smooch. Montreal-based Smooch was founded in 2015 and claims to be a better way to deliver personal, rich conversations with customers online or through the mobile app. It allows organizations to use alternate messaging tools such as WhatsApp, WeChat, Line Messenger along with traditional SMS and emails to communicate with the customers.

Zendesk has already leveraged the acquisition to release WhatsApp for Zendesk, a new WhatsApp Business API connector, that will allow businesses to reach and respond to WhatsApp users. Zendesk realizes the potential of WhatsApp given that it is used by more than 1.5 billion users worldwide. It will allow companies to use WhatsApp’s features that allow agents to manage real-time conversations.

Terms of the acquisition were not disclosed. Prior to the acquisition, Smooch had raised under $10 million from investors including iNovia, TA Associates and Real Ventures. Smooch is estimated to generate revenues of $1.1 million annually.

Zendesk has acquired four other, smaller, companies in the past that have helped it expand its service offerings. These acquisitions have been focused on providing additional capabilities for customer relationship management, customer engagement, message services, and analytical capabilities. More details about these acquisitions can be found here.

Zendesk’s stock is currently trading at $74.70 with a market capitalization of $8.3 billion. It touched a 52-week high of $94.89 last month. The stock has climbed from the 52-week low of $45.60 that it had fallen to in December last year.

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