3 Key Takeaways From Zendesk's Earnings Call

Customer service platform Zendesk (NYSE: ZEN) saw its revenue surge in its first quarter, rising 40% year over year to $181.5 million. Notably, this growth rate was nearly 2 percentage points greater than the growth rate achieved in the first quarter of 2018. Supporting this top-line strength was 9,000 new paid customer accounts compared to the end of 2018.

To better understand Zendesk's uncanny growth, investors can listen to the company's earnings calls. During its most recent one, a number of insightful topics surfaced. Here's a look at three of them.

1. Broad-based growth drivers

As Zendesk CFO Elena Gomez pointed out during the call, the company's growth isn't sourced from just a single tailwind or product. Instead, it's being driven by various factors, making the company's momentum sustainable.

"Our growth was driven by continued favorable market dynamics, product innovation, and improving sales and marketing initiatives," said Gomez. Furthermore, she noted there was robust growth in all of the company's regions and "exceptional performance from the Zendesk Suite."

"We believe we've made significant advances around our business and its competitive position," she added.

2. Looking behind Zendesk's net expansion rate

Zendesk's net dollar-based net expansion rate, or a measure of annual expansion of existing customer revenue, came in at a healthy 118% for the quarter.

During the call, management broke down the drivers for this metric, noting that it comes from both natural growth via the addition of new agents or customers upgrading their plans and from product add-ons.

"We continue to have a lot of our expansion through just natural growth, but we are seeing more and more of that product expansion as well," said Gomez.

Looking ahead, the CFO expects Zendesk's net expansion rate to stay between a range of 110% and 120%.

3. Product priorities

When asked about how Zendesk is thinking about and investing in product development, the company's lead for strategy and investor relations, Marc Cabi, said it boils down to three product priorities.

  1. Scaling: "[B]eing... fully on cloud infrastructure now, our ability to scale continues to improve and we can demonstrate that globally to each of our customers."
  2. Providing valuable data: "[W]e're really looking at how we bring data into the equation, in the value of the data we hold on behalf of our customers and their ability to use that data to serve a better customer experience."
  3. Making products work together: "[W]e're always interested in making sure that all of our products work well together."

Cabi noted that making its products work well together is a particularly big initiative now as the company integrates products it has acquired into the Zendesk environment. But Cabi seemed confident that it's up to the task: "That's the power of Zendesk. When a customer picks up Zendesk, they're able to use these products seamlessly across channels, across the different use cases they might develop."

10 stocks we like better than ZendeskWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has quadrupled the market.*

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and Zendesk wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

*Stock Advisor returns as of March 1, 2019

Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Zendesk. The Motley Fool has a disclosure policy.