Why Shares of Zendesk Inc. Surged on Wednesday

What's Happening: Shares of software-as-a-service provider Zendesk jumped on Wednesday after the company reported its second-quarter results, beating analyst estimates across the board. Zendesk reported quarterly revenue of $48.2 million, a 63% year-over-year increase and about $2 million higher than analysts were expecting. Non-GAAP EPS came in at a loss of $0.08, three cents better than the average analyst estimate. At 2:15 Wednesday afternoon, the stock was up about 13%.

Why It's Happening: Zendesk continues to grow its revenue rapidly, both by winning new customers and by expanding relationships with existing customers. At the end of the second quarter, Zendesk surpassed 60,000 paid customer accounts, and the company's land-and-expand strategy is gaining momentum, according to CEO Mikkel Svane.

While Zendesk remains unprofitable, the company's costs increased at a slower pace than revenue during the second quarter. Gross margin was 66.5%, up from 60.2% during the second quarter of 2014, and operating expenses increased by just 35.4% year-over-year. Both of these factors led to the company's better-than-expected earnings.

Zendesk also provided solid guidance. Revenue between $51 million and $53 million is expected during the third quarter, a year-over-year growth rate of 53% at the midpoint of that range. For the full year, Zendesk anticipates revenue between $198 million and $201 million, representing 57% growth at the midpoint of that range.

Zendesk managed to grow even faster than analysts were expecting, and keeping a lid on costs allowed the company to beat earnings estimates as well. Along with solid guidance pointing to continued rapid growth, it should be no surprise that investors bid up the stock.

The article Why Shares of Zendesk Inc. Surged on Wednesday originally appeared on Fool.com.

Timothy Green has no position in any stocks mentioned. The Motley Fool recommends Zendesk. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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