Why Shares of Zendesk Slumped Today

The company's full-year forecast came with some cautious language.

Timothy Green
Timothy Green
Jul 31, 2019 at 4:41PM
Technology and Telecom

What happened

Shares of Zendesk (NYSE:ZEN) declined on Wednesday following a second-quarter report that failed to impress investors. The software-as-a-service company beat analyst estimates for revenue and raised its full-year outlook, but it wasn't enough to prevent a steep decline in the stock price. Shares were down about 10.3% at market close.

So what

Second-quarter revenue was $194.6 million, up 37% year over year and about $2.1 million above the average analyst estimate. Growth was particularly strong in the U.S. and Latin America, but there were some issues elsewhere. Growth in Europe, the Middle East, and Africa (EMEA) and in the Asia-Pacific (APAC) region, although "still solid," CEO Mikkel Svane said during the earnings call,  "didn't quite live up to our own expectations and [lagged] other regions." 

A declining chart.

Image source: Getty Images.

Non-GAAP (adjusted) earnings per share came in at $0.05, up from $0.01 in the prior-year period and in line with analyst expectations. Free cash flow was $11.2 million, up from $8.7 million one year ago. For the third quarter, Zendesk expects revenue between $206 million and $208 million, along with a non-GAAP operating loss between $2 million and $4 million. That revenue guidance was also in line with the average analyst estimate.

Now what

For the full year, Zendesk is raising its outlook but emphasizing caution. It now expects revenue between $807 million and $811 million, reflecting growth of 35% at the midpoint. "We are maintaining a prudent view on the year as we gain a better understanding of the dynamics, internal and external, in EMEA and APAC," said CFO Elena Gomez.

While results and guidance were generally positive, the company's cautious language surrounding its full-year outlook seems to have spooked investors.