Zendesk, Inc.

ZEN Details

Zendesk, Inc. (NYSE: ZEN) is a software development firm that offers software as a service (SaaS) solutions to assist businesses in creating better customer experiences. Its flagship product, Zendesk Support, enables enterprises to manage and resolve customer support tickets across numerous channels, centralizing customer information and interactions. Zendesk Chat, Zendesk Talk, and Zendesk Guide are some of its other widely available product solutions that interface with Support.

Latest News:

• Strategic Decisions: ZEN sent a letter to its stockholders on January 13, 2022, commenting on its proposed acquisition of Momentive Global Inc., an experience management company, announced on October 28, 2021, and recommending approval of the issuance of its common stock in connection with the transaction scheduled for February 25, 2022.

Q3FY21 Results:

• Significant Growth in Revenue: Revenues increased by 32.47% to USD 346.97 million in Q3FY21 (ended September 30, 2021) from USD 261.93 million in Q3FY20, owing to expansion from existing accounts as of September 30, 2020, and acquisition of new accounts.
• Rise in Net Losses: The company's net loss increased to USD 54.42 million in Q3FY21 from USD 40.70 million in Q3FY20.
• Leveraged Balance Sheet: As of September 30, 2021, the company had cash and cash equivalents (including short-term investments) of USD 953.85 million and total debt of USD 1.11 billion.

Key Risks:

• Dependence on Third Parties: ZEN's platform's significant elements and functionality depend on third parties like technology partners, channel partners, and professional services partners. For example, Zendesk Support's functions rely on technological integration with Alphabet Inc.'s products. As a result, any disagreement with these third parties could negatively influence company operations.
• Ownership Concentration Risk: ZEN's directors, officers, significant shareholders, and their affiliates controlled 30% of its common shares as of September 30, 2021, acquiring tremendous control over company operations and limiting the capacity of other shareholders to influence business decisions.

Outlook:

• Q4FY21 Estimates: ZEN forecasts Q4FY21 revenues to be in the range of USD 366 – 372 million as of October 28, 2021, with GAAP and non-GAAP operating income (loss) ranging between USD (49) – (43) million and USD 22 – 28 million, respectively.
• FY21 Estimates: ZEN anticipates revenue of USD 1.329 – 1.335 billion for FY21, as well as GAAP and non-GAAP operating income (loss) of USD (166) – (160) million and USD 96 – 102 million, respectively.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

ZEN Daily Technical Chart (Source: REFINITIV)

Stock Recommendation:

ZEN's stock price has fallen 30.30% in the past six months and is currently trading close to the lower band of its 52-week range of USD 90.51 to USD 166.60. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 41.07. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 118.94.

Considering the company's growth prospects, Inorganic endeavors, decent fundamentals, current valuation, and associated risks, we recommend a "Speculative Buy" rating on the stock at the current price of USD 96.60, down 3.79% as of January 18, 2022, 11:33 AM ET.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.

* Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Disclaimer

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