HITS

Zendesk expects its strong growth to continue and even gain momentum from its planned acquisition of Momentive and its SurveyMonkey platform, according to Jason Tsai, VP of investor relations at the company.

Zendesk had already increased its annual revenue goal to $3.4 billion from $3.1 billion, he noted. Assuming the Momentive purchase is finalized, Zendesk is “scaling that up even more to about $4.5 billion by 2025,” he said.

The transaction made sense on multiple fronts, he said. First, it will “drive additional revenue opportunities” with customers and help retain them, he noted.

With Momentive added, Zendesk’s customers’ agents “are going to be able to act on the insights and power their customer-facing teams to take action with the full breadth of data” including feedback and market insights provided by the SurveyMonkey platform, improving overall customer interactions, he explained.

The acquisition will also allow Zendesk to grow faster and “go after a much bigger” total addressable market opportunity, he pointed out. The purchase will help it to “grow meaningfully over the next few years,” he said, noting it expects to generate $55 million in additional revenue for 2023 (the first full year after the acquisition is completed) and then an additional $150 million in 2024 and an additional $275 million in 2025.

Zendesk had asked customers what additional capabilities they wanted to see Zendesk offer and their responses matched what Momentive offers, he said.

Most Zendesk investors are still doing their due diligence on the deal, he said, noting they haven’t seen the company make such a huge deal before this. The firm is also awaiting comments from the Securities and Exchange Commission about the transaction, he said, projecting a scheduled date for investors to vote on the deal is expected to follow in the first quarter of 2022.

Zendesk started off servicing small and medium-sized businesses and that is still the “backbone” of its business, he also said. But it’s stepped up its focus on “moving up market” to the enterprise sector over the last four years or so, he noted. Over 100 Zendesk customers today are generating over $1 million in annual recurring revenue (ARR), he pointed out.

With the growth in larger-sized customers, the average deal length has grown about 11% this past quarter and the average deal size has grown about 36% this past quarter vs. a year ago, he said.

Zendesk Suite, meanwhile, rolled out recently and demand has been “extremely strong,” he said, noting it is accounting for 25% of Zendesk ARR now.

Customers who use more than one Zendesk product tend to “stick around longer” than customers who don’t, he pointed out.

“The biggest growth driver for Zendesk has always been and continues to be [its] land and expand” strategy, he went on to say, explaining: “There is always untapped opportunity” to sell something new to a customer. The customers it loses tend to be the ones only looking for the lowest-cost solutions, he added.