Photo Credit: Petr Machá?ek on Unsplash

According to a recent report, the global complaint management software market is projected to grow 6% to reach $2.85 billion by 2028, from $1.8 billion in 2021. Zendesk (NYSE: ZEN) continues to deliver strong growth but is also looking at possible exit options.
 

Zendesk’s Financials

Zendesk’s first-quarter revenues grew 30% to $388.3 million, ahead of the market’s estimate by 1.06%. GAAP net loss was $60.6 million. Adjusted EPS was $0.12, falling short of the Street’s estimates of $0.14.

For the quarter, Zendesk expects revenues of $402-$408 million, compared with the market’s forecast of $405.27 million. For the full year, it expects revenues of $1.685-$1.710 billion compared with the market’s forecast of $1.69 billion.
 

Zendesk’s Product Adoption

Zendesk continues to see growth due to its expansion into the enterprise segment, and the continued adoption of the Zendesk Suite. It is investing in moving into bigger deals that result in stickier customer relationships and better visibility for revenue growth and long-term profitability. As a result of these initiatives, the number of customers that generate more than $250,000 ARR grew to 39% of its total ARR, compared with 34% a year ago. The number of customer accounts generating more than 250,000 ARR grew 41% over the year. Customers with more than $1 million in ARR also increased 65% to 140 during the quarter.

Zendesk introduced Suite in February of last year. In over a year since its release, the product is bringing in more than $600 million in ARR and accounts for 40% of its ARR. The number of customers grew from 3,000 a year ago to over 21,000 customers at the end of the recent quarter. When customers sign up for Suite, their ARR increases by about 20% initially, but soon they start engaging in other key features such as adding chat and messaging channels. As a result, they are seeing higher net expansion rates for Suite customers driven by both higher gross expansion rates and lower churn and contraction compared to non-Suite customers.

Meanwhile, Zendesk’s acquisition plans continue to surprise the market. Last year, Zendesk announced plans to acquire Momentive, formerly known as SurveyMonkey, for an estimated $4.1 billion. However, its board recently rejected the deal citing that the deal lacked financial and strategic merit, introduced substantial execution risk, and relied on highly questionable synergy and pro forma trading multiple assumptions.

Earlier this year, Zendesk’s board had also rejected the plans of a private consortium trying to buy it out. Recent news reports suggest that Zendesk is still evaluating a potential sale and has hired Qatalyst Partners, and reached out to potential buyers, including software companies and private equity firms. Zendesk has not provided any further details on its acquisition. Within the private equity players, Thoma Bravo and Vista Equity Partners could be potential buyers as they have been building their tech portfolio through acquisitions. Within the tech players, I think Adobe and SAP themselves may benefit from Zendesk’s cloud-based customer experience tools.

Zendesk’s stock is currently trading at $96.86 with a market capitalization of $11.9 billion. It touched a 52-week high of $153.43 in July last year and a 52-week low of $87.90 in January this year.