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Why Zendesk Stock Has Popped Today

Timothy Green, The Motley Fool

What happened

Shares of Zendesk (NYSE: ZEN) jumped on Wednesday after the software company reported positive second-quarter results. Zendesk beat analyst estimates across the board, and it boosted its guidance for full-year revenue and free cash flow. The stock was up about 12.3% at 12:20 p.m. EDT.

So what

Zendesk reported second-quarter revenue of $141.9 million, up 39% year over year and about $4.4 million higher than the average analyst estimate. Total paid customer accounts hit 130,300, up 5,200 since the end of the first quarter, and up 22,900 year over year.

The Zendesk logo.

Image source: Zendesk.

Non-GAAP earnings per share came in at $0.03, up from a loss of $0.02 in the prior-year period and $0.03 better than analysts were expecting. Zendesk lost money on a GAAP basis to the tune of $0.33 per share, down from a loss of $0.26 per share in the second quarter of 2017.

Helping to drive growth during the quarter was a 60% jump in contracts with an annual value over $50,000. Zendesk also launched Zendesk Suite, which bundles multiple products together. The Suite has so far exceeded expectations in terms of adoption, according to Zendesk's letter to shareholders.

Now what

Zendesk expects to produce third-quarter revenue between $150 million and $152 million, with full-year revenue between $582 million and $586 million. That full-year guidance represents an increase over Zendesk's previous guidance range of $565 million to $572 million.

Full-year free cash flow is expected between $28 million and $30 million, with non-GAAP operating income between breakeven and $5 million. On a GAAP basis, Zendesk expects to post an operating loss between $130 million and $135 million for the full year.

Zendesk continues to grow rapidly at the expense of its bottom line. The adjusted numbers and free cash flow are rising, but both back out stock-based compensation. Investors don't seem to mind the losses, though, pushing Zendesk stock close to its 52-week high.

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Timothy Green has no position in any of the stocks mentioned. The Motley Fool recommends Zendesk. The Motley Fool has a disclosure policy.