Zendesk Stock: A Compelling Long-Term Growth Play (NYSE:ZEN)

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Zen office (NYSE: ZEN) is a fast-growing company in the rapidly evolving customer engagement solutions market. The company’s strong growth drivers have ensured that its revenue will grow at a teenage low CAGR over the next five years. years. I believe that the company will gradually take market share from its competitors and establish itself as a leading company in customer engagement. Long-term investors can buy the shares of the company during withdrawals to maximize their profit.

Zendesk is a company that primarily offers its customers CRM (customer relationship management) software. The company provides its customers with support, sales and other customer engagement solutions designed to improve customer relationships. The company has built its CRM platform on public cloud technologies and open standards, with ML (machine learning) and AI (artificial intelligence) at its core.

Growth engines

Zendesk Guide

Zendesk Guide is one of the main growth drivers for Zendesk, which is primarily a customer self-service product. The product is powered by a knowledge base that powers both customer self-service and support agent productivity. As a result, the product beats competing products by a wide margin. The product operates from content created and curated by the company’s customers. The product is available through a self-service website and applications used in mobile devices. Agents get it through Zendesk’s Support and Chat products. According to one report:

Customer Self-Service Software Market was valued at USD 7.20 Billion in 2020, and it is projected to register a CAGR of 20.94% during the forecast period from 2021 to 2026.

I expect Zendesk Enterprise Guide revenue to also grow at a similar rate, which will lead to a significant increase in overall revenue growth for the company. The product creates a well-stocked knowledge base to help users. Additionally, it has a feature called Answer Bot, which uses ML and AI to automatically answer customer questions. These are the reasons why Zendesk Guide enjoys a growing demand in the market. The proceeds will significantly boost the company’s long-term revenue growth.

Zendesk Chat and Zendesk Talk

Zendesk Chat and Zendesk Talk are the main growth drivers for the company. Zendesk Chat is a live chat and messaging software using which businesses can connect with their customers on websites and social messaging sites, as well as on mobile devices. Zendesk Talk is cloud-based call center software for more personal and productive voice and messaging services. Together, Zendesk Chat and Zendesk Talk provide an effective contact center solution. According to one report:

The global Contact Center Software market size was valued at USD 26.93 billion in 2021. The market is expected to grow from USD 30.74 billion in 2022 to USD 78.75 billion in 2029, growing at a CAGR of 14.4 % over the forecast period.

I expect Zendesk’s revenue from Zendesk Chat and Zendesk Talk to also grow at a similar rate. Since these products can be configured according to the preferences of Zendesk customers, they enjoy increasing demand in the market. As cloud-hosted contact center solutions become indispensable for the customer support activities of the world’s leading enterprises, the adoption rate of Zendesk’s contact center solutions will increase dramatically in the long term, and they will increasingly contribute to Zendesk’s total revenue and propel it into the future. upward direction.


The customer engagement software market is highly competitive, fragmented and rapidly changing. Zendesk’s competitors in this market are Microsoft (MSFT), Salesforce (CRM), Oracle (ORCL), ServiceNow (NOW) and Pegasystems (PEGA). Zendesk competes with these companies based on product quality, depth of product offerings, and price.

Zendesk’s main competitive advantage is that it creates customer service software based on an open and flexible platform. Additionally, the software is quick to set up and customizable, providing customers with simple, consistent, and frictionless experiences. This guarantees the conquest of new customers and a significant growth of the company’s income. The other competitive advantage of the company is that it uses a modern technological architecture to develop its solutions. A core set of APIs are used for the solutions, enabling rapid innovation and deep integration. The technology infrastructure used for Zendesk software assures customers of a highly scalable cloud platform with high-level built-in security measures. As a result, Zendesk’s revenue should increase significantly over the long term.

Fourth quarter 2021 financial results

Zendesk’s revenue for the fourth quarter of 2021 was $375.4 million, a 32% year-over-year increase. Non-GAAP net income for the quarter was $20.1 million and non-GAAP net income per share was $0.17, up 54.55% year on year on the other. The company’s guidance for first-quarter 2022 revenue was between $381 million and $387 million, and guidance for non-GAAP operating profit was between $20 million and $26 million.

Zendesk’s revenue rose in the fourth quarter on the back of its growing enterprise customer base, and net profit rose on cost control measures. The company’s continued transition to a digital-first economy fueled revenue and bottom line growth. Global brands continued to choose Zendesk to improve their interaction with customers. Zendesk is under pressure from activist firm JANA Partners to sell the company. The company has approached potential buyers including software companies and private equity firms for this purpose. However, I believe that Zendesk will not be sold because such corporate activist initiatives remain mostly unsuccessful for high-growth, well-managed companies. Zendesk is a stable company with strong business momentum. I believe that the sale of the company will not materialize given the strong growth opportunities of the company.

In 2021, the company released a new version of its omnichannel offering, known as Zendesk Suite. The product combines many of the company’s existing solutions, such as Support, Chat, Talk, Guide, Explore and Sunshine. In Q4 2021, Zendesk Suite achieved widespread adoption. In just 11 months since Suite’s launch, the product has grown to 35% of the company’s annual recurring revenue, or $500 million in annual business. I expect Zendesk Suite to continue to increase total company revenue over the next five years. Suite is seeing rapid adoption as it has powerful features that are easy to implement.


Zendesk’s competitors are Microsoft, Salesforce, Oracle, ServiceNow, and Pegasystems.

Non-GAAP P/E (FY3) 73.80x 21.68x 24.34x 12.92x 38.96x 30.80x
TTM price at sales 10.99x 10.99x 6.13x 4.89x 15.32x 4.66x
TTM price to cash flow 88.36x 24.14x 28.06x 19.12x 41.72x 144.93x

(Data Source: Alpha Research)

Zendesk is highly rated compared to its competitors. Its balance sheet consists of $476.10 million in cash and $1,203.60 million in debt. The company is highly valued despite its indebtedness as its products enjoy strong demand in the market. Over the past five years, the company’s revenue has grown at a CAGR of 33.74%. This massive revenue growth in the past and the expectation that revenue will continue to grow at an ever-increasing rate has made the company a huge value. The company’s contact center and customer service products are its primary growth drivers, which will drive the company’s revenue growth at a CAGR of approximately 1,100 over the next five years. As a result, the company’s share price will rise significantly over the long term. I’m optimistic about the long-term business.

Assuming Zendesk’s revenue will grow at a CAGR of 12%, I’ll find out the company’s long-term (next five years) share price. The company’s trailing 12-month revenue is $1,338.60 million, and at a CAGR of 12%, the company’s revenue by mid-2027 will be $2,359.00 million. dollars, or $19.36 per share. Over the past five years, the company’s shares have traded between price and sell multiples of 6x and 18x. Over the next five years, I expect the company’s price to sales to stabilize at around 12x. Applying a price-to-sell multiple of 12x on Zendesk’s mid-2027 revenue per share, I get $232.32 as the company’s stock price in mid-2027.


Zendesk’s success in attracting new customers and increasing revenue from existing customers depends on its ability to introduce new products and improve existing products consistently. To grow its business, the company must engage in successful research and development activities. If the company fails to develop new products and improve existing products through research and development, its revenue growth and profitability could be adversely affected.

In order to remain successful, the company must create or acquire product and platform solutions that complement the company’s existing solutions. The company’s customers expect its new solutions to be well integrated with its existing solutions. The expectation has increased with the launch of Zendesk Suite, a product offering with multiple solutions. If the company fails to offer new solutions without complementing existing solutions, its revenue growth and profitability could be negatively affected.


Zendesk’s solutions are chosen by multiple brands around the world, which is evident by the massive adoption of the company’s Zendesk Suite offering. I expect the company’s customer engagement solutions to continue to grow in adoption due to higher quality compared to competing products. Growing adoption will translate into steady revenue growth for the business. Long-term investors can buy the company’s shares during downturns and hold them for at least three to five years to realize big gains.

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