Why Shares of Zendesk Surged Higher Today

By Timothy Green Markets Fool.com

What happened

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Shares of Zendesk (NYSE: ZEN) soared on Thursday following the company's fourth-quarter report. The company beat analyst estimates for both revenue and earnings, and it maintained its goal of reaching $1 billion of revenue by 2020. At 11:45 a.m. EST, the stock was up about 18%.

So what

Zendesk reported fourth-quarter revenue of $88.6 million, up 41% year over year and a little over $1 million higher than the average analyst estimate. The total number of paid customer accounts jumped to 94,000, up from just 70,000 at the beginning of 2016. The company pointed to its strategy of moving from a single product to an array of products and services that integrate seamlessly as a major driver of growth.

Image source: Zendesk.

Non-GAAP EPS came in at a loss of $0.04, up from a loss of $0.07 during the prior-year period and $0.02 better than analysts were expecting. GAAP operating expenses grew slower than revenue, jumping 31% year over year.

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Zendesk management summed up the year in the company's letter to shareholders:

We view 2016 as a critical year in that transition as we elevated our brand, became a multi-product company, and further grew our reach in mid-size and enterprise businesses. It was a year of rapid change and momentum for us.

Now what

Zendesk expects to keep growing quickly in 2017. First-quarter revenue is expected between $91 million and $93 million, while full-year revenue is expected between $415 million and $425 million. The midpoint of the full-year guidance range represents growth of 34.6%.

Although both GAAP and non-GAAP earnings will remain negative, Zendesk also expects to produce positive free cash flow in 2017. The company is still pushing to generate $1 billion of revenue by 2020, and management believes that it's on the path to reaching that goal. With solid results and continued optimistic long-term targets, investors pushed up shares of Zendesk on Thursday.

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Timothy Green has no position in any stocks mentioned. The Motley Fool recommends Zendesk. The Motley Fool has a disclosure policy.