While it's easy to focus on the headline-grabbing earnings reports from megacap tech stocks every earnings season, this could lead to missing out on notable quarterly updates from smaller companies. Two fast-growing tech companies that may have slipped past some investors' radars are Zendesk (NYSE:ZEN) and Five9 (NASDAQ:FIVN).
Both of these cloud-based companies reported impressive third quarters. Here's a closer look at their performance.
Zendesk is an $8.7 billion company that provides a cloud-based customer service platform for organizations. Paid customer accounts in Zendesk's third quarter crossed 150,000 as the company achieved an annual revenue run rate greater than $800 million. Revenue during the period jumped 36% year over year to $210.5 million as non-GAAP (adjusted) operating income surged from $3.8 million in the year-ago quarter to $10.6 million.
"As more and more organizations worldwide seek to transform their businesses around their customers, demand for our customer experience products increases," Zendesk said in the company's third-quarter shareholder letter.
Playing a key role in the company's growth during the period was adoption of the company's omnichannel subscription, Zendesk Suite. Customers have been quickly adopting Zendesk Suite, which provides customers access to multiple products through a single subscription. More than 5,000 customers now subscribe to this omnichannel solution.
Less than half the size of Zendesk, Five9 is the smaller of these two companies. The cloud-based contact center specialist currently has a market capitalization of about $4 billion. Despite its smaller size, Five9 is just as worthy of a spot on your watchlist as Zendesk is.
In Q3, Five9 reported revenue of $83.8 million, up 28% year over year. Highlighting the company's momentum, this was an acceleration from 27% growth in Q2. Five9's business continues to be driven by significant growth in enterprise subscription revenue. Trailing-12-month enterprise subscription revenue was up 36% year over year during Q3. Operating income growth of 14% year over year lagged revenue growth as the company invested in growth opportunities. But management believes these investments are worthwhile.
"As increasingly larger enterprises have begun to demand cloud contact centers, we have responded by hiring more engineers and scaling our team, resulting in a substantial increase in throughput and innovation," said Five9 CEO Rowan Trollope in the company's third-quarter earnings release. "[...] Overall, our balanced approach to growth is succeeding, and we believe the investments we have made in leadership and talent position Five9 for sustained long-term growth."
In light of its strong momentum, Five9 gave its full-year outlook for both revenue and non-GAAP earnings per share a significant boost. Management now expects revenue between $321.7 million and $322.7 million, up from a previous forecast for $312.5 million and $314.5 million. In addition, Five9 guided for non-GAAP earnings per share between $0.77 and $0.78, up from a prior outlook for $0.70 to $0.73.