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Factors Setting the Tone for Zendesk's (ZEN) Q4 Earnings

·4 min read

Zendesk ZEN is scheduled to release fourth-quarter 2020 results on Feb 4.

For the fourth quarter, the company expects revenues between $274 million and $279 million. The Zacks Consensus Estimate for revenues is currently pegged at $277.4 million, which indicates growth of 20.7% from the year-ago quarter’s reported figure.

Moreover, the consensus mark for earnings has been stable at 15 cents in the past 30 days, reflecting year-over-year growth of 50%.

Zendesk, Inc. Price and EPS Surprise

Zendesk, Inc. Price and EPS Surprise
Zendesk, Inc. Price and EPS Surprise

Zendesk, Inc. price-eps-surprise | Zendesk, Inc. Quote

Notably, the company’s earnings have surpassed the Zacks Consensus Estimate in three of the trailing four quarters, while missing once. It has a trailing four-quarter positive earnings surprise of 41.9%, on average.

In the last reported quarter, Zendesk reported earnings of 17 cents per share. The bottom line beat the Zacks Consensus Estimate by 70%. Also, earnings rallied 41.7% on a year-over-year basis. Revenues of $261.9 million surpassed the consensus mark by 3.5% and increased 24.4% on a year-over-year basis.

Factors Likely to Have Influenced Q4 Results

Triggered by the COVID-19 crisis, business enterprises across all sectors are revamping their digital customer engagement experiences. Zendesk is a cloud-focused customer relationship management (CRM) platform.

Zendesk’s fourth-quarter results are expected to have benefited from healthy uptake of its flagship product Zendesk Support Suite and Zendesk Sunshine solutions among others. Sunshine Conversations is also witnessing sturdy adoption among business enterprises.

Zendesk Support Suite is an omnichannel, bundled, subscription-based product, that is gaining significant traction among small and medium businesses (SMBs) as well as enterprises. Notably, Zendesk Sunshine is a CRM platform built on Amazon Web Services (AWS) and supports open standards.

At the end of third-quarter 2020, paid customer accounts were nearly 169,600, up 5,400 sequentially. The company’s dollar-based net expansion rate was at 112%.

In the quarter under review, Zendesk teamed up with Unity to become a part of Unity's Verified Solutions Partner program. Further, Zendesk collaborated with Facebook to offer improved customer conversations on the WhatsApp platform from within Zendesk.

However, many sectors like airlines that were rattled by COVID-19 crisis are still in a recovery phase. This might have negatively impacted the adoption of Zendesk solutions and put pressure on the top line in the to-be-reported quarter.

Also, rising costs on product development amid stiff competition is expected to have put pressure on margins in the fourth quarter.

What Our Model Says

Our proven model doesn’t conclusively predict an earnings beat for Zendesk this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here.

Zendesk has a Zacks Rank #3 and an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks to Consider

Here are some stocks, which you may consider, as our proven model shows that these also have the right mix of elements to beat estimates this time around:

Qorvo QRVO has an Earnings ESP of +0.78% and holds a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Synaptics Incorporated SYNA has an Earnings ESP of +0.42% and currently carries a Zacks Rank of 2.

CDW Corporation CDW has an Earnings ESP of +6.74% and a Zacks Rank of 2.

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Synaptics Incorporated (SYNA) : Free Stock Analysis Report

Qorvo, Inc. (QRVO) : Free Stock Analysis Report

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CDW Corporation (CDW) : Free Stock Analysis Report

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