Now And Zen: Oppenheimer Waits For Better Entry Point In Zendesk

Zendesk Inc ZEN is a "fast-growing, best-of-breed SaaS company" that is gaining market share in the customer engagement category, according to Oppenheimer. The company has expanded its product portfolio and has an installed base that offers monetization opportunities, in the sell-side firm's view. 

Despite these positives, Zendesk's share price does not offer an attractive entry point, particularly due to potential weakness in SMB demand and acqusition risks, Oppenheimer said in a Thursday note. 

The Analyst

Oppenheimer’s Koji Ikeda initiated coverage of Zendesk with a Perform rating.

The Thesis

Zendesk should be able to sustain its competitive advantage, given its leadership position in the customer service category and a large monetizable installed base, Ikeda said in the initiation note.

The company is also poised to benefit as its new product cycles ramp up, the analyst said. 

Customer engagement has become a meaningfully large category, with companies using next-gen technology to connect better with customers, according to Oppenheimer. Technology providers in the segment like Zendesk are operating in a total addressable market estimated at more than $20 billion, in the firm's view. 

Risks come due to the softening SMB end market and the possibility that FutureSimple integration takes longer than anticipated, Ikeda said. 

Zendesk’s stock is trading at a premium to the SaaS industry average, and its future potential seems to be priced in, the analyst said.

The company’s shares have appreciated around 600 percent since its May 2014 IPO versus an average gain of 240 percent for the SaaS group and a 40-percent gain for the S&P 500, Oppenheimer said.

Price Action

Zendesk shares were up 0.76 percent at $64.89 at the time of publication Thursday. 
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Photo courtesy of Zendesk.