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Zendesk Projects Slowing Sales Growth Amid Economic Downturn

Nico Grant

(Bloomberg) -- Zendesk Inc. withdrew its annual sales forecast and projected slowing revenue growth in the second quarter, signaling that the coronavirus pandemic has trimmed demand for customer-service software.

Revenue will be $237 million to $243 million in the period ending June 30, which would be as much as a 25% increase from a year earlier, the San Francisco-based company said Thursday in a statement. Analysts had expected $245 million, according to data compiled by Bloomberg. Zendesk projected operating income, excluding some expenses, of $8 million to $12 million.

The company in February told investors to expect sales of as much as $1.07 billion in 2020. Now, Zendesk’s timetable for crossing the billion-dollar revenue mark is in doubt. First-quarter sales increased 31% to $237.4 million from a year earlier, in line with analysts’ expectations.

Zendesk Chief Executive Officer Mikkel Svane has sought to sell the company’s software to larger businesses and, in the process, compete more directly against Salesforce.com Inc. The company now relies on small and mid-sized businesses seeking applications to manage their customer relationships. Before the results, analysts had warned that Zendesk’s customer base would expose it more directly to the economic downturn than software makers with larger clients like Microsoft Corp. and Salesforce.

Chief Financial Officer Elena Gomez said she was worried about the company’s “pivot” to remote work as the virus hit. “We’ve been able to continue to do business and we’ve had a lot of organizations and large enterprises coming to us to adopt our solutions to help respond to the crisis,” she said. “That positions us for strength as we come out of Covid.”

Zendesk is seeking payment flexibility for customers in hard-hit industries, Gomez said on a conference call. And there has been a surge in use of customer-service software among all its clients, Svane added.

Shares declined about 5% in extended trading after closing at $76.88 in New York. The stock has been little changed since the start of the year.

(Updates with CFO remarks in sixth paragraph.)

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