After rising 72% last year, shares of &l;a href=&q;http://zendesk.com&q; target=&q;_blank&q;&g;&l;strong&g;Zendesk&l;/strong&g;&l;/a&g; (ZEN) are off to a good start in 2019, sporting a YTD gain of 44%. The provider of a cloud-based customer service platform continues to successfully expand its enterprise business, and has introduced new products aimed at taking market share from Salesforce (CRM).
Zendesk has emerged as an innovator when it comes to improving the customer service experience, sporting a customer count of nearly 137,000.
The company still generates about 85% of its revenue from its core Support solution, which includes AI technology to help automate responses and quickly resolve issues. But Zendesk has been steadily adding new offerings to its product portfolio that are intended to drive more proactive customer engagement across various channels&a;mdash;including voice, text and chat.
Zendesk puts a lot of emphasis on continuously improving its technology to stay competitive, spending about 20% of total revenue on R&a;amp;D. Two or three years ago, the R&a;amp;D budget was geared mainly toward shifting Zendesk to serve more enterprise customers, which have greater technology requirements than small and midsize (SMB) organizations, historically the company&a;rsquo;s core customer base.
Today, about 40% of Zendesk&a;rsquo;s monthly recurring revenue comes from enterprise accounts (those with 100+ seats), up from 38% a year ago. Now that Zendesk&a;rsquo;s core customer service offerings are fully enterprise capable, the focus has turned to overall innovation and new-product development.
Zendesk&a;rsquo;s R&a;amp;D dollars are now directed at integrating various communications channels in a fluid manner. For example, organizations need to be ready for when a customer starts an interaction on chat and wants to finish it with a call. With Zendesk, the entire omni-channel communications process is made easier, creating a better experience for the end customer. Self-service is another area of focus, as it leads to higher overall customer satisfaction.
The company recently rolled out three new products. Sell, a sales force automation (SFA) tool, looks most promising. The product gives Zendesk a presence in the large market for business sales applications, which IDC forecasts will be worth $13.8 billion in 2021. Sell also places Zendesk squarely within Salesforce&a;rsquo;s main competitive zone.
Sell is built specifically to assist sales reps in interacting with prospects and moving hot leads through the sales pipeline. Aimed predominantly at the mid-market segment, which has been under-served by SFA tools, Sell provides a nice cross-sell vehicle for Zendesk&a;rsquo;s core Support offering.
Sell was developed with the technology from last year&a;rsquo;s purchase of FutureSimple, the company behind the Base SFA solution. Before the acquisition, Zendesk and Base had integrated their products to bring together support and sales information about customers. When integrated with Zendesk&a;rsquo;s Support product, Sell lets support agents notify sales reps of opportunities surfaced during support calls.
Explore, Zendesk&a;rsquo;s new analytics solution, is designed to provide businesses with the ability to measure and improve the customer service experience. The solution comes with built-in best practices dashboards, enabling teams of any size to see the metrics that help them better understand their customers. Explore integrates data from every channel, providing a broad view of how customers interact with a brand.
Sunshine is one of Zendesk&a;rsquo;s most ambitious new offerings. Built natively on Amazon&a;rsquo;s AWS, Sunshine is an open and flexible customer relationship management (CRM) platform that competes directly with Salesforce. Zendesk says the solution offers a more modern approach to the CRM environment, as Sunshine enables businesses to connect and understand all of their customer data, no matter where it might live.
Sunshine also enables developers to build and deploy customer apps and services at a faster pace.&a;nbsp;Given the transition these days to a more subscription-based economy, organizations of all sizes must keep better track of customer buying trends and interactions over time. While providing steadier cash flow, subscriptions can make customer service more challenging because they&a;rsquo;re not a one-and-done transaction.
Sunshine, available now as part of Zendesk Enterprise, provides a complete picture of a customer&a;rsquo;s relationship with an individual business. The more a business knows about its customers, the longer it will be able to keep them happy, engaged and coming back to buy more products or services.
With Sunshine, users can create a single, unified view of the customer across all applications, leading to improved cross-system identification and conversations. Using the Events capability, companies can capture any customer activity (including customer service interactions, website visits and purchase transactions) in a historical timeline. The Custom Objects API allows users to collect additional information tied to products.
Zendesk shares recently traded to a new all-time high of $84.56, sparked in part by the company&a;rsquo;s strong Q4 results, which showed top-line growth accelerating to 41% from 38% in Q3. Per-share earnings of 10 cents beat the consensus by three cents.
Zendesk is seeing solid demand for its Suite offering, an omni-channel bundle aimed at the SMB customer segment. Introduced in May 2018, Suite combines the company&a;rsquo;s Support, Guide, Talk and Chat offerings into one package.
The combo sale provides a nice boost to average deal sizes at the lower end. The lift is measurable: Zendesk sees an average per/customer sales price increase of 50% on Suite deals, vs. a typical single-product sale.
The upper end of the market continues to perform well, with enterprise customers driving up deal sizes. In Q4, the number of deals worth $50,000 or more rose 6% year over year, while the average contract value of these large transactions advanced 60% during the same period. In a new go-to-market move, Zendesk this year plans to offer omni-channel bundles aimed at enterprise customers.
For 2019, Zendesk&a;rsquo;s initial revenue guidance range of $795 million to $805 million (growth of 33.6% at the midpoint) came in well above the consensus estimate of $779.3 million. Look for upside to the revenue forecast to come from Zendesk&a;rsquo;s top priorities for 2019&a;mdash;including advancement of the CRM platform and an expanded reach into larger enterprises.&l;/p&g;
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