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Zendesk (NYSE:ZEN) Posts Better-Than-Expected Sales In Q4, Stock Soars


Kayode Omotosho /
2022/02/10 4:35 pm EST
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Customer service software maker Zendesk (NYSE:ZEN) beat analyst expectations in Q4 FY2021 quarter, with revenue up 32.4% year on year to $375.3 million. Guidance for the full year was in line with estimates, with revenues guided to $1.69 billion at the midpoint. Zendesk made a GAAP loss of $61.8 million, improving on its loss of $70 million, in the same quarter last year.

Is now the time to buy Zendesk? Access our full analysis of the earnings results here, it's free.

Zendesk (ZEN) Q4 FY2021 Highlights:

  • Revenue: $375.3 million vs analyst estimates of $369.8 million (1.5% beat)
  • EPS (non-GAAP): $0.16 vs analyst expectations of $0.18 (11.8% miss)
  • Revenue guidance for Q1 2022 is $384 million at the midpoint, roughly in line with what analysts were expecting
  • Management's revenue guidance for upcoming financial year 2022 is $1.69 billion at the midpoint, in line with estimates and predicting 26.2% growth (vs 28% in FY2021)
  • Free cash flow of $28.2 million, down 56.7% from previous quarter
  • Gross Margin (GAAP): 79.4%, up from 76.2% same quarter last year

Founded in 2006 by three Danish friends who got tired of implementing complex old-school solutions, Zendesk (NYSE:ZEN) is a software as a service platform that makes it easier for companies to provide help and support to their customers.

Companies need to be able to interact with and sell to their customers as efficiently as possible. This reality, coupled with the ongoing migration of enterprises to the cloud drives demand for cloud-based customer relationship management (CRM) software that integrate data analytics with sales and marketing functions.

Sales Growth

As you can see below, Zendesk's revenue growth has been strong over the last year, growing from quarterly revenue of $283.4 million, to $375.3 million.

Zendesk Total Revenue

This was a standout quarter for Zendesk, with the quarterly revenue up 32.4% year on year, which is above average for the company. Quarter on quarter the revenue increased by $28.3 million in Q4, which was in line with Q3 2021. This steady quarter-on-quarter growth shows the company is able to maintain a strong growth trajectory.

Guidance for the next quarter indicates Zendesk is expecting revenue to grow 28.8% year on year to $384 million, improving on the 25.5% year-over-year increase in revenue the company had recorded in the same quarter last year. For the upcoming financial year management expects revenue to be $1.69 billion at the midpoint, growing 26.2% compared to 28% increase in FY2021.

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Profitability

What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Zendesk's gross profit margin, an important metric measuring how much money there is left after paying for servers, licenses, technical support and other necessary running expenses was at 79.4% in Q4.

Zendesk Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.79 left to spend on developing new products, marketing & sales and the general administrative overhead. Trending up over the last year, this is a good gross margin that allows companies like Zendesk to fund large investments in product and sales during periods of rapid growth and be profitable when they reach maturity.

Key Takeaways from Zendesk's Q4 Results

With a market capitalization of $12.4 billion, more than $1.01 billion in cash and with free cash flow over the last twelve months being positive, the company is in a very strong position to invest in growth.

It was good to see Zendesk deliver strong revenue growth this quarter. And we were also glad that the revenue guidance for the next year looks positive. Overall, this quarter's results seemed pretty positive and shareholders can feel optimistic. The company is up 5.38% on the results and currently trades at $120.33 per share.

Should you invest in Zendesk right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

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The author has no position in any of the stocks mentioned.