Analyst Note| Dan Romanoff, CPA |
Narrow-moat Zendesk delivered solid third-quarter results, as revenue topped the high end of guidance and adjusted EPS blew past our expectations. While we think macro conditions have not fully recovered, we can point to signs that business is returning to normal, such as improving net dollar expansion and a pickup in customer additions. Still, hard-hit industries remain challenged. As normalization, we think customers that benefited from concessions will be stickier and will be more likely to add additional solutions. While the coronavirus pandemic continues to foster demand for remote-work solutions and customer-engagement offerings, we believe Zendesk can capitalize on these growth opportunities and employ their land-and-expand marketing strategy. After filtering results and guidance through our model, we are raising our fair value estimate to $102 per share, from $95. With shares trading at a slight premium to our estimate, we would recommend waiting for a pullback before investing.