After completing a successful IPO this spring, Zendesk, provider of a cloud-based customer service platform, recently added to the upside momentum, reporting second quarter revenue growth of 80 percent.
In the past quarter, the seven-year-old company added more than 3,000 new accounts and now has an installed base of 45,740 customers, up 40 percent year-over-year. Among Zendesk’s customers: Uber, OpenTable, Airbnb, Groupon, Adobe Systems, Box, Dropbox, L’Oreal, Nine West Group, Red Bull, Roku and AOL.
With so many consumers these days turning to Facebook, Twitter and Yelp to talk about their customer service experiences, it’s more critical than ever for businesses to get it right. Poor customer service is now much more of a social event, and potentially more harmful to an organization’s reputation.
Building Better Brand Experiences
Zendesk’s overarching goal is to improve the way its customers interact with their own customers, helping drive a better overall brand experience. The company believes customer service needs to be instant, transparent, personalized and ubiquitous.
Zendesk’s sales pitch to potential new customers: easy implementations, a relatively quick return on investment, low total cost of ownership and a more pleasant user experience.
The company continues to innovate as well as expand the platform. Earlier this year, Zendesk bought Zopim, a provider of advanced real-time chat functionality, and in the second quarter began to integrate this newer technology into its platform. In addition, Zendesk has been expanding its analytics feature set, making it easier for its customers to analyze interactions to improve customer satisfaction, boost loyalty, reduce churn and drive more up-sells.
While Zendesk’s help-desk solution is aimed at smaller businesses, the company now generates 23 percent of its monthly recurring revenue from customers with at least 100 seats, more than double that of a year ago. When it comes to large accounts, Zendesk generally gets its foot in the door at the departmental level and then expands from there via positive recommendations.
Strong Demand, Customer Retention
Zendesk is a prime example of how excellent customer service can be an important marketing tool: 68 percent of its new engagements come from word-of-mouth and other unpaid means. In the second quarter, the company’s dollar-based net expansion rate of 122 percent shows strong customer retention and demand from the installed base.
While half of all new customers now come from a no-touch sales channel, the company is expanding its number of outbound-focused sales reps to help drive growth at larger accounts. Zendesk’s goal is to have 100 salespeople on board by the end of this year, double the number at the end of 2013. This expanded field sales team, with its own pipeline of business, should provide a boost to top-line growth starting next year.
The company has been ramping up its international business, which now accounts for 43 percent of total revenue. Zendesk already has more than 15,000 customers across Europe, the Middle East and Africa. The company counts 3,000 accounts in Australia and New Zealand, while fast-growing Brazil now has a base of 1,500 customers. In the second quarter, Zendesk held 46 training events worldwide for 2,200 customers and prospects; 73 percent of the events were held outside of the US.
Follow the Money
Zendesk went public in May at $9 a share; the stock opened for trading at $11.40. Following the strong second quarter earnings report (revenue of $29.5 million easily beat the consensus estimate of $25.9 million), the shares in early August jumped nearly 10 percent in one session. Earlier this month, the stock hit a new post-IPO high of $28.05.
For 2014, Zendesk is expected to come in with revenue of $120.5 million (year over year growth of 67 percent), representing a tiny share of the overall market for customer service/call center software (estimated by IDC to be worth $10.2 billion) and indicating a lot of room for expansion.
With the stock recently back down to $21.75, the market cap of $1.56 billion is 9.1 times the 2015 consensus revenue estimate of $171.8 million (expected growth of nearly 43 percent).