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Zendesk Inc’s Strong Results and New Acquisition Keeps Momentum Going
Zendesk Inc (NYSE:ZEN) stock has been on a tear as of late, advancing 150% since the start of 2018 and rising 50% in 2019. The reason? The company continues to report strong quarterly results that beat Wall Street expectations.
You can’t ask for much more than that from a tech stock (or any stock, for that matter).
And thanks to strong guidance, acquisitions, and a rapidly expanding customer base, the outlook for Zendesk stock remains bullish. A forecast for the next 12 months of $129.00 is within reach. Currently trading at record levels near $85.00, a 12-month price target of $129.00 would be a gain of almost 52%.
Zendesk Inc Overview
The word “zen” is not what comes to mind when you think of dealing with customer service. Nevertheless, Zendesk is a customer service platform company that provides software to help create a better experience for agents, administrators, and customers. And who wouldn’t like that?
“Zendesk Suite” combines multiple services into one platform and “Zendesk Sunshine” is the company’s new “open and flexible” customer relationship management platform.
In May, Zendesk acquired Montreal-based Smooch Technologies ULC, home to a business-to-customer messaging platform, for an undisclosed sum. “(Source: “Zendesk welcomes Smooch, a platform for messaging,” Zendesk Inc, May 22, 2019.)
Smooch supports speech on voice assistants like “Alexa” and “Google Assistant,” and supports text on services like “WhatsApp,” “Facebook Messenger,” and “Twitter DM.”
Zendesk provides its services to more than 145,000 paid customer accounts in more than 160 countries and more than 30 languages. Founded in Copenhagen and headquartered in San Francisco, Zendesk operates 17 offices in North America, Europe, Asia, Australia, and South America. (Source: “Investor & Analyst Event,” Zendesk Inc, May 22, 2019.)
Zendesk Stock Performance
| ZEN Stock Information | |
| Market Cap | $9.3 Billion |
| Beta | 1.46 |
| 52-Week Change | 50% |
| 52-Week High | $90.53 |
| 52-Week Low | $45.60 |
| Shares Outstanding | 109.6 Million |
| Float | 107.6 Million |
| 50-Day Moving Average | $85.51 |
| 200-Day Moving Average | $72.69 |
(Source: “Zendesk, Inc. (ZEN),” Yahoo! Finance, last accessed May 29, 2019.)
Zendesk stock has been extremely bullish since the start of 2018—further back than that, actually. The stock’s momentum stalled in 2018, however, along with the broader market, during the fourth quarter.
Zendesk was already a great tech company before the stock market swoon, which helped ZEN stock rebound quicker than most. The stock resumed its upward trend in the last week of 2018 and, by early February, it had erased all of its fourth-quarter 2018 losses.
Since then, ZEN shares have gone on to notch up record-high prices.
In early February, Zendesk announced that its fourth-quarter revenue increased 41% year-over-year to $172.2 million and that its non-generally accepted accounting principles (GAAP) earnings per share were $0.10—significantly higher than the $0.01 per share in the fourth quarter of 2017. (Source: “Zendesk Announces Fourth Quarter And Full Fiscal Year 2018 Results,” Zendesk Inc, February 5, 2019.)
Over the next two months, the company’s share price advanced more than 26%.
Chart courtesy of StockCharts.com
Zendesk Reports Another Strong Quarter
On April 30, Zendesk announced that its revenue for the first quarter ended March 31, 2019 increased 40% year-over-year to $181.5 million. (Source: “Zendesk Announces First Quarter 2019 Results,” Zendesk Inc, April 30, 2019.)
Non-GAAP earnings came in at $5.1 million ($0.04 per diluted share), a 151% increase over the $2.0 million, or $0.02 per share in 2018.
The company reported a first-quarter net loss of $44.7 million, or $0.41 per share. In the first quarter of 2018, Zendesk had a net loss of $29.3 million, or $0.28 per share.
The company ended the first quarter with cash and cash equivalents of $142.4 million, a 12.6% improvement over the $126.5 million held on December 31, 2018.
Zendesk Inc Second-Quarter Outlook
For the second quarter ended June 30 2019, Zendesk expects to report:
- Revenue in the range of $191.0 to $193.0 million, compared to revenue of $141.9 million in second-quarter 2018..
- Operating income loss in the range of $44.0 to $42.0 million, compared to an operating income loss of $33.6 million in second-quarter 2018.
- Non-GAAP operating income in the range of $0.00 to $2.0 million, compared to a non-GAAP operating loss of $2.0 million in second-quarter 2018.
(Source: Ibid. and “Zendesk Announces Second Quarter 2018 Results,” Zendesk Inc., July 31, 2018. )
Zendesk Inc Full-Year 2019 Forecast
For full-year 2019, Zendesk expects to report:
- Revenue in the range of $802.0 to $810.0 million, compared to $598.7 million in 2018.
- Operating income loss in the range of $164.0 to $160.0 million, compared to an operating loss of $137.9 million in 2018.
- Non-GAAP operating income in the range of $14.0 million to $18.0 million, compared to non-GAAP operating income of $3.5 million in 2018.
- Free cash flow in the range of $55.0 to $65.0 million, compared to free cash flow of $36.3 million in 2018.
(Source: Ibid. and “Zendesk Announces Fourth Quarter And Full Fiscal Year 2018 Results,” Zendesk Inc, op cit.)
Analyst Take
The reason why Zendesk stock has been bullish is simple: the company continues to report strong financial results, add new paid customers, and provide strong guidance.
Since reporting great first-quarter earnings at the end of April, ZEN stock has been trading in a tight range, but that has more to do with concerns about a tech cold war with China than anything to do with Zendesk Inc’s operations.
A resolution of the lumbering trade war between the U.S. and China should help Zendesk’s share price break out to the upside.
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