Oppenehimer Says Zendesk's Moderating Upside Prevents A Bullish Stance

Zendesk Inc ZEN reported a first-quarter beat Tuesday and raised its full-year revenue guidance. The company’s beat-and-raise trend moderated in the quarter, which may suggest less upside in future quarterly results, according to Oppenheimer.

The Analyst

Koji Ikeda maintained a Perform rating on Zendesk.

The Thesis

The customer service software provider reported healthy first-quarter results, with total revenue of $181.5 million. Total revenue grew 40 percent year-on-year and came in about $2 million higher than the consensus.

At 4 cents, the company’s pro forma EPS beat the Street estimate by a penny.

Zendesk generated more than 35-percent growth in revenue, billings, subscription billings and deferred revenue, and its emerging products Sell and Sunshine performed well during the quarter, Ikeda said in a Wednesday note. (See his track record here.) 

The analyst said he prefers to remain on the sidelines until “there are more data points suggesting the less upside to results seen in 1Q was more a blip versus a trend.”

Zendesk’s second-quarter total revenue guidance of $191-$193 million represents 35-36 percent year-on-year growth and is mostly above the consensus estimate of $191.3 million.

The pro-forma operating income guidance of a  range of breakeven to $2 million arrived broadly in-line with the consensus expectation of $1.1 million, Ikeda said. 

Zendesk announced mixed 2019 guidance. The total revenue projection was raised to $802-$810 million, taking it mostly above the consensus estimate of $802.8 million. Yet the midpoint of the pro forma operating income guidance range came in below the $17-million consensus, the analyst said. 

Price Action

Zendesk shares were down 3.85 percent at $84.40 at the time of publication Wednesday. 

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Photo courtesy of Zendesk.