Recently Zendesk (NYSE: ZEN) announced its second-quarter results that continued to outpace market estimates. The company has seen a strong improvement in most of its metrics during the pandemic.

Zendesk’s Financials

Zendesk’s second-quarter revenues grew 29% to $318.2 million, compared to the market’s estimate of $322.88 million. GAAP net loss was $58.4 million. Adjusted EPS was $0.13, compared to the Street’s estimates of $0.16.

For the third quarter, Zendesk expects revenues of $332-$337 million, compared with the market forecast of $319.79 million. For the full year, it expects revenues at $1.31-$1.318 billion compared with the market forecast of $1.31 billion.

Zendesk’s Growth

Zendesk’s momentum in the quarter was driven by accelerating billings, cRPO bookings, strong momentum of Suites, and an increase in net revenue retention. Q2 billings grew 29% over the year to $364.1M, significantly above the market’s consensus of $345 million. cRPO bookings accelerated to 47% compared with 32% over a year ago and its Net Revenue Retention grew to 120% in the quarter compared with 114% a year ago.

Its big success story though was the increasing adoption of Suites as the percent of ARR doubled to 16% of the total vs 7% in the previous quarter. Customer count grew from over 3,000 a quarter ago to more than 8,000 by the end of the quarter. Zendesk Suite is the collection of Zendesk products and capabilities that provide access to tools needed to create a complete omnichannel support solution. It is built around a ticketing system that seamlessly integrates all of the communication channels used to interact with end customers.

Zendesk’s stock is currently trading at $123.83 with a market capitalization of $14.8 billion. It touched a 52-week high of $166.60 in May. The stock had fallen to a 52-week low of $85.44 in August last year.

Freshworks’s Growth

Meanwhile, rival Freshworks entered into a partnership with Pink Elephant EMEA, a global IT Service Management specialist. The partnership will enable Pink Elephant and Freshworks to provide their IT Service Management services jointly. Pink Elephant EMEA has over forty years of experience within the ITSM market. With Pink Elephant being able to provide Freshservice along with its own services, organizations will be able to integrate service delivery for employees at all touchpoints by getting access to flexible, out-of-the-box, practical solutions that drive business efficiencies.

Freshworks still has not released the details of a listing. It had hired Morgan Stanley as its banker earlier this year, sparking rumors that an IPO is imminent.

Freshworks has so far raised $399 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 raised $85 million in a round led by Steadview Capital.  

Like I have said before, I think Zendesk should look at acquisitions to drive growth. I believe there are quite a few smaller organizations out there that Zendesk could benefit from. For instance, SupportLogic, which was introduced to me by Ken Elefant from Sorenson Ventures, could be a good match as it is already integrated with both Zendesk and Freshworks. SupportLogic’s solution extracts AI/NLP-driven signals from customer datasets to improve support quality and by integrating its analytics with existing ticketing systems, its technology can provide recommendations, intelligent workflows, and seamless integration with collaboration software. SupportLogic is privately held and has raised $12 million in funding from investors including Sorenson Ventures, Emergent Ventures, and Sierra Ventures.

Similarly, Lisbon-based Unbabel could be another interesting addition for its AI capabilities that help organizations serve customers in their native languages. It too has deep integrations with Zendesk and Freshworks. It is privately held and has raised more than $90M in funding from investors including Greycroft, Faber, Samsung NEXT, e.ventures, Scale Venture Partners, Notion Capital, FundersClub, Structure Capital, Caixa Capital, and M12.