Zendesk (ZEN 54.28, +0.52, +0.97%) is trading modestly higher today after reporting Q3
results last night. In case you're not familiar, Zendesk is a provider of
cloud-based software which helps businesses better manage their customer
service activity. Basically, it is software for the call center, but instead of
customers just calling a 1-800 number, ZEN's platform modernizes the experience
by allowing companies to communicate with customers using email, chat, voice,
social media, and websites.
Its platform also consolidates the data from customer interactions and provides companies with analytics and performance benchmarking. Zendesk believes there has been a profound shift in how companies communicate with their customers. Over the last several years, the ways in which people research, purchase from, and communicate with companies have evolved from a relatively simple set of interactions into a rapidly expanding network of methods. Since Zendesk went public in 2014 with an annual revenue run rate of $100 mln, it has already grown to a $500+ mln run rate and they hope to get to $1 bln by 2020.
A big part of its success is that ZEN has been winning deals with larger enterprise customers. Nearly 40% of revenue now comes from larger customers. Much of this comes from an increased focus on developing products for larger enterprises.
Turning to the Q3 results, non-GAAP EPS jumped to $0.09 from a $(0.01) loss in the prior year period. This was a good bit better than expected. Revenue rose 37.9% yr/yr to $154.8 mln, which was above prior guidance of $150-152 mln. Looking ahead, ZEN has guided to Q4 revenue of $164-166 mln, which is also above expectations.
On the call, ZEN talked about how demand for its customer experience software is strong and has experienced tremendous changes. ZEN made major progress on its two key priorities for the year: maturing its omnichannel offerings and accelerating its move upmarket with enterprise customers (and landing larger-sized deals).
The Zendesk Suite, its new omnichannel bundle, has gotten off to a solid start and continues to perform ahead of expectations. ZEN believes it has put the company in an even stronger competitive position and opened the doors to many new opportunities that ZEN did not see before. ZEN also is seeing benefits from advancing its enterprise product features and the upmarket efforts of its go-to-market teams.
Additionally, in September 2018, ZEN acquired the company behind Base. It broadens ZEN's offering in customer experience with sales force automation software. While ZEN has an immediate opportunity to cross-sell its products, this is also a strategic long-term investment. ZEN is investing in Base's product development and market growth and ZEN plans to integrate sales software deeply into its product family so the company has a more complete offering for current and future customers.
In sum, this was another good quarter for Zendesk. The company consistently beats EPS expectations, as the company has done for 11 quarters in a row. The stock has pulled back over the past month or so from $72 to around $56 now as tech stocks have been out of favor recently. But with that said, ZEN's business is solid, they have moved into profitability, and their business seems to be in an attractive and growing market.
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