Zendesk’s Products Help Increase Average Deal Size

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According to a recent report, the global Complaint Management Software Market is expected to grow at 11% CAGR 2028. Zendesk (NYSE: ZEN) is a leading player in the market that continues to outpace market’s forecast. Rival Freshworks is not too far away, preparing for its IPO.

Zendesk’s Financials

Zendesk’s first quarter revenues grew 26% to $298 million, ahead of the market’s estimate by 1.21%. GAAP net loss was $49 million. Adjusted EPS was $0.17, beating the Street’s estimates of $0.12.

For the second quarter, Zendesk expects revenues of $317-$322 million, compared with the market’s forecast of $309.6 million. For the full year, it expects revenues of $1.298-$1.318 billion compared with the market’s forecast of $1.3 billion.

Zendesk’s Product Adoption

Earlier this year, Zendesk had introduced the new Zendesk Suite, a simplified complete customer service solution that included comprehensive social and native messaging capabilities, thus simplifying the ability for businesses to connect with their customers through the customer’s preferred communication channel. It also introduced embedded voice so that businesses no longer need to list a phone number in every country from which they want to offer voice support. Additionally, Zendesk customers using its unified Agent Workspace are able to self-activate WhatsApp numbers for free.

The solution has seen strong adoption within the first two months of its launch. It has attracted more than 3,000 customers and accounts for nearly 7% of its annual recurring revenue. This new offering has also helped raise the average deal size for Zendesk, suggesting that the market is pleased with the maturity of the products that it is offering.

During the quarter, its total annual recurring revenue (ARR) from customers with ARR of $250,000 or more grew 40% over the year, and total ARR from customers with ARR of $500,000 or more grew 50% over the year, both outpacing the average growth rate of total ARR.

Zendesk’s stock is currently trading at $137.07 with a market capitalization of $16.3 billion. It touched a 52-week high of $166.60 earlier this month. The stock had fallen to a 52-week low of $77.13 in May last year.

Freshworks’ IPO

Meanwhile, rival Freshworks appears to be heading closer toward a stock listing. Recent news reports suggest that it has hired Morgan Stanely to prepare for a US IPO. Analysts believe that Freshworks’ IPO could value it at $10 billion. So far, Freshworks has been privately funded, having raised $484 million from investors including Sequoia Capital India, Accel, Google, Tiger Global Management, and CapitalG. Its last round of funding was held in January last year when it had raised $85 million in a round led by Steadview Capital. An earlier round held in November 2019 had valued it at $3.5 billion.

Freshworks does not disclose detailed financials, but it is estimated to have surpassed $300 million in ARR last year, growing 40% over the year. 

Disclosure: All investors should make their own assessments based on their own research, informed interpretations, and risk appetite. This article expresses my own opinions based on my own research of product-market fit, channel execution, and other factors. My primary interest is in product strategy. While this may have bearing on stock movements, my writings tend to focus on long-term implications. The information presented is illustrative and educational, but should not be regarded as a complete analysis nor recommendation to buy or sell the securities mentioned herein. I am not a registered investment adviser and I am not receiving compensation for this article. I am an investor in Zendesk. Freshworks was incubated in 1Mby1M.

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