The sweet spot in the software market is cloud applications. Zendesk (NYSE:ZEN) is in this sweet spot. and the company and the owners of ZEN stock have benefited from its positioning.
Founded in Copenhagen, Denmark in 2007 around help-desk applications, ZEN subsequently moved to the bright lights of San Francisco and has developed a broader customer-relationship-management tool.
The company’s growth is accelerating. It generated revenue of $598 million in 2018, up from $430 million in 2017, and it provided top-line guidance of$800 million for 2019.
It’s investing to support its growth, so it’s not profitable yet, but its operating cash flow is positive, and ZEN stock recently set a new record. As of this morning, ZEN stock was changing hands at $74.80 per share.
A New Market And New Competitors for ZEN
Zendesk Support now has 2,000 employees and 125,000 customers including AirBnB, Stanley Black & Decker (NYSE:SWK) and Rovio Entertainment (OTCMKTS:ROVVF). Telephone operators use the product to resolve customers’ problems and provide customer support. In the wake of its growth, multiple companies have launched competing tools.
Meanwhile, after launching a full customer relationship management tool called Sunshine, ZEN has started butting heads with a number of its San Francisco and Silicon Valley neighbors like Salesforce.Com (NASDAQ:CRM).
Sunshine is a database application that’s built entirely on Amazon.com’s (NASDAQ:AMZN) cloud service, AWS. Sunshine offers support for sales and data analytics and can connect with other data sources. Additionally, customers can add their own applications to Sunshine
ZEN is using AWS as an operating system, in the same way that companies a generation ago built applications on Microsoft (NASDAQ:MSFT) Windows. Using a single, large operating system also improves the customer experience, since sales and support are maintained in the same system.
Zendesk recently surveyed 2,500 of its customers. and found that many of them now sell products and provide support over not just telephones and their websites but also through live chats, social media, and texting. Zen Sunshine supports all of these activities and offers a single view of the complete record of each customer.
With the launch of Sunshine, ZEN has acquired a host of competitors like Freshdesk and Liveagent on the help-desk side, but also Zoho and Salesforce on the CRM side, all of which also boast about fast growth and cloud integration.
The Bottom Line on ZEN Stock
Zendesk’s success has made ZEN stock expensive. ZEN stock has a market cap of $8 billion, while analysts on average expect the company’s 2019 revenue to come in at $592 million. On the other hand, by the end of December, it had already booked $407 million in future revenue, and the size of its average contract is growing by 60% per year.
Zendesk’s commitment to AWS, the leading cloud provider, and its construction of the Sunshine platform on top of it offers ZEN the opportunity to scale quickly from help-desk automation to full customer relationship management.
Zendesk is still led by its founders, but it has sought to tap other talents with a board that includes executives from Workday (NASDAQ:WDAY) and Facebook (NASDAQ:FB), as well as Matrix Partners, the venture capital firm that funds ZEN.
ZEN’s Danish management team is talented, but it will have to move quickly indeed to keep the high valuation of ZEN stock intact.
Dana Blankenhorn is a financial and technology journalist. He is the author of a new mystery thriller, The Reluctant Detective Finds Her Family, available now at the Amazon Kindle store. Write him at email@example.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in MSFT and AMZN.