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Cloud Stocks: Zendesk Invests in the Future

Posted on Thursday, Aug 20th 2020

Zendesk (NYSE: ZEN) recently announced its second quarter results that were ahead of the market’s forecast. The company is still not providing an outlook for the year but remains confident of crossing its targeted billion-dollar revenue milestone this year.

Zendesk’s Financials

Zendesk’s second quarter revenues grew 31% to $246.66 million, ahead of the market’s estimate by 2.85%. GAAP net loss was $64.7million. Adjusted EPS of $0.14 was ahead of the Street’s estimates of $0.10.

Back in 2015, Zendesk had announced a goal of achieving $1 billion in revenue by 2020. While it has withdrawn its outlook for the year, it remains optimistic that it will be able to reach this goal this year. For the third quarter, it forecast revenues at $250-$255 million, compared with the market’s forecast of $252.59 million.

Zendesk’s Investment Focus

Zendesk is using the current crisis time to strengthen its relationships with customers and invest in longer-term opportunities. It is providing relief to its customers by adjusting contract terms, thus sacrificing short-term financial metrics in favor of strengthening long-term relationships. These actions have impacted and will continue to impact its near-term net expansion rate and overall financial performance, including free cash flow. But Zendesk views this as an investment being made for the longer-term investment in its customers.

During the quarter, Zendesk saw significant demand for its communication solutions and worked on prioritizing the use of analytics to improve the overall customer experience. Demand for the Zendesk Support Suite omnichannel bundle, its Explore data product, and Sunshine Conversations messaging platform saw good traction. Support Suite now features new messaging capabilities that help meet the end customers’ need to feel constantly connected. It now allows for personalized, asynchronous communication between an organization and its customer.

Zendesk acquired FedRAMP authorization during the quarter that will allow it to bid for projects being offered by Governmental agencies and their affiliates.

It is also helping smaller organizations access its solutions easily. During the quarter, it saw sales to small businesses grow despite the uncertainties brought on by the virus. The increased adoption by smaller organizations was driven by its faster deployment capabilities. Additionally, it is also making continued improvements to its learn-try-and-buy and in-product adoption experiences that are focused on these smaller organizations.

Other long-term investments are being made in its messaging service as it focuses on enabling all companies to operate on major social messaging channels with native messaging capabilities built into their apps and services. To this end, it is building a deeper integration of social and native messaging capabilities in its Support Suite.

Zendesk is also building out its PaaS strategy. It had recently launched its app marketplace called Marketplace for Sell that will allow customers to build private apps with a new application development framework. Customers will be able to use these apps to connect to an internal system or build functionality customized to their needs. It will also allow industry partners to add connections to their software so that users can access their other applications while remaining on Sell. Zendesk does not release details about app usage.

Zendesk’s stock is currently trading at $87.87 with a market capitalization of $10.1 billion. It touched a 52-week high of $101.94 late last month. The stock had fallen to a 52-week low of $50.23 in March this year.

This segment is a part in the series : Cloud Stocks


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