Opportunities Remain Healthy For Zendesk After A Solid Q4

Zendesk Inc ZEN reported robust fourth-quarter results, with the company’s revenue rising 41 percent to $88.6 million, way ahead of the consensus forecast.

William Blair’s Bhavan Suri maintains an Outperform rating on the company.

Solid Q4

Zendesk reported its non-GAAP operating loss for Q4 at $4.4 million, beating the consensus forecast of $5.5 million, while the non-GAAP loss per share of $0.04 was also ahead of the consensus.

Billings also grew 40 percent to $101.4 million, beating expectations.

“We were pleased with management’s 2017 full-year revenue guidance of $415 million to $425 million, implying 33 percent to 36 percent growth, which registered above expectations of $410.4 million,” Suri mentioned.

Looking Ahead

Although investors could be concerned that the guidance suggests a heavy reliance on an H2 outperformance, the analyst stated that conversations with management and partners indicate that even the current guidance had some conservatism built in and that Zendesk might raise the guidance through the year.

“We believe the company continues to execute well in the small and midsized (SMB) market, which is supporting the majority of its growth. Our sense is the greenfield opportunity within the SMB market remains healthy and ripe for displacing basic tools such as shared email accounts and Excel,” Suri went on to say.

In addition, the analyst believes Zendesk continues to gain momentum in the enterprise market, given that 34 percent of its recurring revenue is generated from customers with more than 100 agents, up from the 33 percent is the previous quarter and 32 percent in the previous year.

“We expect Zendesk to show improvement of this metric by roughly 100 basis points sequentially each quarter over the next four years, ultimately reaching roughly 45 percent to 50 percent in 2020,” Suri added.

At last check, shares of Zendesk were up 16.97 percent at $28.67.