ZEN Stock: Should Zendesk Be Part of Your Equity Portfolio In 2022?

Author: Finscreener

Estimated read time: 3 minutes

Publication date: 23rd Jun 2022 11:12 GMT+1

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%.

Zendesk's 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.

Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.