Not all cloud computing stocks have fared well in the current crisis and those serving the SMB segment are seeing a much bigger impact. Zendesk (NYSE: ZEN) recently announced its quarterly results that failed to impress the market with its outlook.
Zendesk’s first quarter revenues grew 31% to $237.4 million, in line with the market’s forecast. GAAP net loss was $36.2 million. Adjusted EPS of $0.10 was ahead with the Street’s estimates of $0.06. But the company’s outlook dampened the performance.
Zendesk withdrew its outlook for the year amidst the current virus concerns. It did provide a current quarter outlook. Revenue for the quarter was forecast at $237-$243 million, falling short of the market’s forecast of $245 million. The stock fell 6% in the after-hours session post the result announcement.
Zendesk’s Enterprise Focus
While Zendesk has been trying to expand its footprint into the enterprise segment, most of its customers still fall in the small and mid-sized business category. The current crisis has been particularly hard on the SMB segment. Analysts have expressed concerns that Zendesk’s customer base will make it more prone to the economic downturn than software providers with larger clients. Zendesk continues to focus on making inroads into the larger organizations. Earlier this year, it announced a strategic alliance with Tata Consultancy Services (TCS) as part of this focus. As part of the partnership, Zendesk’s support, sales, and engagement software solutions will be integrated with TCS’s contextual knowledge and experience in digital transformation. The two companies will work together to help organizations solve for their complex technological requirements while providing CRM custom solutions and integrations.
Besides partnerships, Zendesk is also improving its product offering. Earlier this year, it announced its new Support and Sales Suite that expands its service-first CRM solutions by enabling service and sales teams to instantly connect with their customers and have natural conversations across all touchpoints. Zendesk Support Suite will empower businesses to deliver a seamless conversational customer experience. They will be able to get a comprehensive view of the latest conversations so that service agents can deliver personalized interactions with their customers. The new Support Suite includes social messaging channels so that customers can manage conversations on messaging apps such as WhatsApp and Facebook Messenger.
Zendesk does not have a PaaS strategy but operates on integrations with its API-based latform. Its customers can use and build integrations that allow them to store, manage, and connect all of their customer data for further analysis. Recently, it announced a new e-commerce integration that allows organizations to process events such as billing so that they can provide real-time help to end customers.
Zendesk’s stock is currently trading at $80.18 with a market capitalization of $9.16 billion. It touched a 52-week high of $94.89 in July last year. The recent stock market turbulence had sent the stock falling to a 52-week low of $50.23.
Rival Freshworks is also trying to stay ahead by improving its platform integration. Recently, it announced an integration with Slack to allow teams and customers to collaborate and communicate more effectively. The integration will allow customers to address the surge in issues by providing a seamless way for agents to respond and resolve inquiries as they will be able to use Slack to collaborate with teammates in other departments instantly.
Many had expected Freshworks to go public soon. It recently hired a new CFO Tyler Sloat who was part of the team responsible for taking Zuora public. The recent economic conditions may have put a dampener on those plans for the short term, but the company has not published any statement to the effect.
Freshworks remains privately held for now having raised $399 million from investors including Sequoia Capital India, Accel, Google, Tiger Global Management, and CapitalG. Its last round of funding was held in November last year when it raised $150 million in a round led by Google at a valuation of $3.5 billion. Recent reports suggest that Freshworks doubled revenues in the past 18 months to pass $200 million in annual sales.
This segment is a part in the series : Cloud Stocks