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When you’re “a small player in a large market that is still new, fragmented and growing,” a key to success is “staying one step ahead of the competition,” and that’s what workplace software developer Zendesk ( ZEN ) is doing, said Summit Research analyst Jonathan Kees. Following the upbeat commentary in Kees’ research note, issued Sunday, Zendesk stock was up a fraction in early afternoon trading in the stock market today , but it’s still more than 25% below a 17-month high at 27.52, touched Dec. 4. Like other players in the infamous Software Sag of 2016, Zendesk fell hard in January and early February, hitting a 21-month low of 14.39 low on Feb. 9. Zendesk, which specializes in customer relationship management (CRM) software, went public in May 2014, priced at 9. Initiating coverage, Summit Research gave Zendesk a buy rating with a 25 price target. Zendesk is “executing on its growth strategy in a largely untapped $7.6 billion market, moving successfully toward positive (free cash flow) and profitability, and maintaining revenue growth in the 30%-plus (rate) over the next several years,” Kees said. “Most of Zendesk’s customers are SMBs (small to medium-size businesses), though the company has been moving upmarket, with customer deals with more than 100 seats now almost a third of monthly recurring revenues. Among other benefits, larger customers buy more, tend to purchase annual contracts and raise overall ARPU (average revenue per user). Founded in 2007, Zendesk is the oldest of the vendors targeting SMBs.” Big rivals such as Microsoft ( MSFT ), Salesforce.com ( CRM ) and Oracle ( ORCL ) also target midsize businesses. Shares of all three were down a fraction Monday afternoon. “As ZEN moves upmarket, (it) faces deep-pocketed competitors like Salesforce.com and Oracle that can easily bundle customer engagement functionality with their total offerings,” Kees warned. Zendesk is targeting positive free cash flow by 2017, profitability by 2020 and $1 billion in sales by 2020, he noted. For its Q1 ending Thursday, 12 analysts surveyed by Thomson Reuters expect a consensus 10-cent loss, flat with a year ago, on revenue up 56% to $66 million. Zendesk CFO Alan Black is expected to leave this year. Kees said, “We are always a little cautious and little worried when a CFO leaves a company. However, we are cautiously optimistic Zendesk will take appropriate steps to identify a CFO who can take the company to the next level ($1 billion in revenue by 2020).” Scalper1 News
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