ZEN Stock: Should Zendesk Be Part of Your Equity Portfolio In 2022?
June 23 2022 - 6:12AM
Finscreener.org
Zendesk (NYSE: ZEN)
is a software as a service (SaaS) company based in the US. It
offers its services to customers around the world. Like most tech
stocks, the company has been in the red in 2022 and has lost over
42% this year. However, Zendesk shares were relatively stable until
the start of May. Since then, matters have been unraveling for the
company. The company’s decision to stay independent after a
strategic review also had a negative impact on its
valuation.
Let’s see if Zendesk can stage a
comeback in 2022.
Near-term challenges for Zendesk
The
rising inflation rates
around the world have adversely
affected the financial markets as a whole. As per economists,
following this rapid increase in inflation levels, the US Fed is
likely to go in for accelerated hikes in interest rates in the
coming months and the decision is bound to impact companies across
the board.
The economy will slow down and
the looming risk of recession will continue to persist if the
interest rates are raised too quickly. Zendesk has to juggle
multiple issues as it navigates through tough macroeconomic
conditions.
Zendesk has several growth drivers
Zendesk is a high-growth-oriented
company and has been continuously evolving its customer engagement
solutions. Its CRM platform has been built based on trending
hi-tech technologies like ML (machine learning) and AI (artificial
intelligence).
Further, it has got several
growth drivers to ensure its future growth due to an expanding
suite of products and services. Its Zendesk Support is a system
that helps customers track and prioritize their consignments while
providing customer support facilities at the same time. Zendesk
Chat is a live chat and messaging software that helps customers
connect on websites and mobile device applications.
Similarly, there are Zendesk Talk, Zendesk Guide, Zendesk Gather,
and many more.
Zendesk Guide is one of the major
drivers of its growth. This customer self-service product powers
both customer self-service and support agent productivity and is,
therefore, one of a kind. The
customer self-service software
market is expected to
grow at a CAGR of 20.94% from 2021 to 2026, and Zendesk Guide will
be in a perfect position to exploit the opportunities and thus
significantly boost the company’s growth in the long
term.
Zendesk Chat and Zendesk Talk
offer an efficient contact center solution for the clients. They
are touted as the next growth drivers. The
global contact center software
market is expected to
grow from $30.74 billion in 2022 to $78.75 billion in 2029 at a
CAGR of 14.4% thereby providing an excellent growth opportunity for
Zendesk.
Improving financials for ZEN stock
Zendesk’s revenues have been
growing every quarter. Its sales rose by 30% year over year to
$388.3 million in the March quarter. In the year-ago period, its
revenue was up 26%. Further, the adjusted gross margin stood at 78%
in 2020 and has improved to 83% in Q1 of 2022.
In Q2 of 2022, Zendesk forecast
revenue between $402 million and $408 million while adjusted
operating income is estimated between $18 million and $24
million.
Zendesk closed on June 22 at $57.
The average analyst target price for the stock is $133.53, a
potential upside of over 122%.
ZendeskU+02019s solutions are
being adopted by multiple brands around the world due to their
superior quality and such wide adoption is expected to continue in
the future as well thus ensuring the company will benefit from
predictable cash flows. Also, despite suffering from several
short-term complications the Zendesk stock can provide reasonable
returns to the ones who can put their money for a longer
term.
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