What happened
Shares of customer service software company Zendesk (ZEN) rose 18.4% in February, according to data from S&P Global Market Intelligence.
Zendesk, which helps companies easily deal with customer service tickets and customer communications, has also pulled off the remarkable feat of being a technology stock that is actually positive on the year. How did it do it?
For one, Zendesk was beaten-down entering the year, as the company embarked on an acquisition that was highly unpopular with shareholders. But in February, three things happened: The company reported strong earnings, management disclosed it had received its own acquisition offer from a private equity firm, and shareholders rejected the unpopular acquisition.
So what
Zendesk was already somewhat of a special situation heading into 2022. After it offered to acquire SurveyMonkey parent Momentive Global (MNTV) last October, activist investor Jana Partners took a stake in Zendesk and asked it to scrap the deal, alleging it was paying too high a price and that the deal was a waste of shareholders' money.
Then in conjunction with its December quarter earnings report, Zendesk disclosed that it had received, then rejected, an offer to buy the company from a consortium of private equity companies for a price between $127 and $132 per share. That compared with a stock price of about $100 at the time and $114 today. Certainly, it helps sentiment when the so-called "smart money" in private equity thinks your stock is a value.
Also helping: Zendesk delivered strong fourth-quarter earnings in February, with revenue up 32% to $375.4 million, which was ahead of expectations. While adjusted (non-GAAP) earnings per share of $0.16 came up just short, most high-growth tech companies are judged by the market on their revenue growth.
Finally, at the end of the month, shareholders rejected the Momentive acquisition in a big way, with just 9% of shareholders voting in favor of the unpopular deal. That's the lowest percentage of shareholder approval for any deal over the past 20 years!
Image source: Getty Images.
Now what
It's hard to say where Zendesk goes from here without Momentive, but investors seem to be more optimistic now that management has scrapped its acquisitive ambitions. Zendesk trades around 10 times trailing sales; while not cheap, it's also not overly expensive in the software world for a company growing more than 30%, and with a net expansion rate that accelerated last quarter to 122%.
With an activist on board and other private equity investors interested, Zendesk may be the rare software stock that could hold up in today's tumultuous market.
