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Zendesk is seeing positive signs in its business in the back half of 2020 despite ongoing COVID-19 challenges, according to company executives speaking at the UBS Global TMT Virtual Conference Monday.

“We feel we have recovered nicely from Q2, which was, as we all know, a challenging quarter as the pandemic emerged,” Elena Gomez, the firm’s CFO, told listeners.

In the third quarter, “we felt really encouraged by what we saw in terms of customer activity and that continues in Q4 as well,” she said, noting “demand is strong.”

Although “obviously anything can happen and we don’t feel like we’re out of the woods in terms of [the] pandemic generally,” she said: “I think the initial shock is gone behind us and our customers are showing signs of more confidence now.”

Pointing to one major trend, she said: “Something that has held true throughout this pandemic is customers are looking for quick time to value and [among] customers who are considering operating in digital channels, that thinking has accelerated and, in many cases, has resulted in them working with us maybe sooner than they thought or making a choice about a vendor and us being the one that can really bring quick time to value, and that’s always been our roots.”

Time to value is a measure of the time needed to finish a project and see benefits from the solution chosen.

Meanwhile, for “customers who really want an omni-channel presence, we’ve seen” an increase in the use of messaging channels also, Gomez said. “People want to move faster and that bodes well for Zendesk,” she added.

Marc Cabi, SVP of investor relations and strategic finance & analytics at Zendesk, noted there are also certain industries that are “actually showing very strong demand fundamentals because they’re in a digital environment,” and those include video game and e-commerce companies.

“Those companies are using Zendesk in ways to satisfy a new demand profile, and so we’ve been very pleased with that category… the last few months,” he said.

Some of the changes brought on by the pandemic “will be long-lasting,” he predicted. “Before the pandemic, many companies were dependent on old systems, often more than 10 years old, and those architectures don’t really meet the requirements of kind of this new environment,” he pointed out.

Now, “companies are seeing success deploying messaging and other more synchronous channels that they will continue to deploy [and so] we feel good about demand fundamentals longer term,” he said.

As Zendesk customers “establish budgets in ’21 and ’22, they’re going to be much more mindful about modernizing their software architecture than going back to what they had before,” he predicted.

Zendesk’s “new business activity has improved during the second half of this year as more and more companies evaluate different ways of serving their customer” and, as a result, “we’ve been really pleased with new customer activity as a result,” he told listeners.

However, the “normal cadence of expansion may be a little lower because companies aren’t hiring employees at the rate they were pre-pandemic,” he conceded. “But I would assume that as” influence from the pandemic’s impact “declines next year… companies will begin to hire again and that should help our overall expansion numbers in ’21,” he predicted.

Growth Strategy

Zendesk, meanwhile, has “a mission to be a multi-billion dollar company and we’ve been thinking about it not just recently but over the last couple of years,” according to Gomez.

The company has been investing in senior leadership for the past couple of years and is “excited about our opportunity internationally,” she said, noting it plans to continue its international expansion.

“In terms of product innovation, we cannot be complacent,” she conceded, explaining: “We have to really be thinking about our customers’ expectations that continue to rise and what they will be thinking about in two years. Right now we’re focused on messaging and bundling our products…. Product innovation will continue to be critical.”

Cabi went on to discuss the growing significance of Sales Suite and Support Suite bundled products compared to individual product sales.

“The Suite has been definitely a very strong player from a go-to-market perspective,” he said, noting: “We’ve seen good demand fundamentals.” About 2-3 years ago, before Zendesk introduced the Suite concept, “close to 90 percent of our revenue was coming from our support product only,” he said, noting “that’s down closer to 70 percent today” as customers increasingly turn to multiple omni-channel capabilities.

As the company moves into 2021 and beyond that, we can expect to see the company put together a mix of products that it thinks are good use cases for its customers to consider, he told listeners.

“We’ll be much more flexible and agile with our product and packaging as we move into the following years based on the success of the Suite,” he said.

Zendesk has also “not lost a ton of productivity” since the pandemic started and will give its employees the opportunity to come to the office as needed to collaborate, Gomez went on to say. The company will, however, “lean in on digital first in most cases,” she noted.

Cabi ended the discussion by noting that, in the enterprise space, “more and more companies are beginning to look at their old tech stacks as hindering their ability to be agile or flexible, and so there are a growing number of CIOs and CTOs out there that are evaluating a combination of cloud infrastructure.”

Cabi thinks that as those executives “do that, Zendesk becomes a very natural play for them to consider as they modernize their tools,” he said, adding: “I definitely think we’re in a good place to have those conversations and change more minds over time. There are still CIOs and CTOs out there that gravitate to the safety of an older architecture platform but there are many more CIOs now thinking about ‘how I become more flexible,’ ‘how I make my organization more agile’ and I think we fit that bill nicely.”