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Bull of the Day: Zendesk (ZEN)

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Based in San Francisco, CA, Zendesk Inc. (ZEN - Free Report) is a software development company that provides a software-as-a-service (SAAS) customer service platform. With its various applications, clients get to manage incoming support requests from end customers in many different industries, from business technology, telecommunications, and education/non-profit to consumer technology, media/entertainment, and retail & e-commerce.

This Zacks Rank #1 (Strong Buy) stock is set to see strong earnings growth in the near-term, with triple digit earnings expansion expected for fiscal 2018.

Shares Pop on Q1 Earnings Beat

Back in May, Zendesk reported strong first quarter 2018 earnings results. Net loss per share came in at 24 cents, topping the Zacks Consensus of a loss of 29 cents per share.

Revenues of $130 million surged 38% year-over-year, and the company’s paid customer account growth increased a healthy 23% from the prior year period.

Looking at Zendesk’s operating metrics, its percentage of Support MRR generated by customers with 100 or more Support agents remained solid at 38% in Q1, up from 34% in Q1 2017.

Additionally, the number of contracts the company closed with an annual value of $50,000 or greater was 60% higher than in the first quarter of 2017. And, the average size of these transactions was bigger when compared to the same period last year as well.

As a result, shares were up about 7% right after the report was released.

Earnings Outlook & Guidance

The company expects continued revenue and customer account growth throughout this year thanks to its product portfolio expansion and omnichannel offerings.

Zendesk also recently launched the Zendesk Guide Enterprise, an AI-powered self-service product for bigger companies that should help boost future momentum and grow the size of new customer deals.

As for earnings, ZEN projects its bottom line to surge 100% for the current quarter, and almost 170% for 2018 versus last year. What’s more, the current Zacks Consensus for 2018 is sitting in positive territory, a good sign for a company that’s nearing profit potential.

Next year is looking promising as well, with anticipated earnings growth topping 267%.

What’s Next for ZEN?

Shares of the SAAS company have soared over 100% over the past year and are up nearly 67% year-to-date. In comparison, the S&P 500 has only gained about 12% and 1% in the same time periods, respectively.

Zendesk, Inc. Price and Consensus

Zendesk, Inc. Price and Consensus | Zendesk, Inc. Quote

Like with many tech companies, especially ones that haven’t yet made any profit, it’s easier to look at ZEN’s price-to-sales ratio rather than its price-to-earnings ratio when considering valuation. Right now, the stock has a P/S ratio of 12.5 compared to the Internet-Software industry’s standing of 4.2.

For investors who want a young technology stock that is moving in the right direction, Zendesk is one to keep on the short list.

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