Despite management's projections, investors still have concerns regarding the flat customer count over the last several years. In this clip from "3 Minute Stocks Updates" on Motley Fool Live, recorded on Feb. 16, Motley Fool contributors Brian Withers and Brian Feroldi discuss Zendesk's (ZEN) strategy and why investors should want to keep this software stock on their radar.
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Brian Withers: There were a lot of things to like about this earnings release. I was going through the shareholder letter and I got to the last page. It showed the customer count. They actually showed the customer count for the last five quarters. You mentioned it in your presentation that it was down year-over-year, but it's essentially been flat for the last five quarters and slightly down over the last two. What gives? Is that something to be concerned about?
Brian Feroldi: Yes, that is definitely something to watch. The last time I saw a SaaS company that was growing its revenue but not its customers at a rapid clip, let's see. What comes to mind? Fastly (FSLY 2.87%), that's been a disappointing stock. New Relic (NEWR), that's been a disappointing stock, so that is definitely something for investors to watch here. But to give you a sense of what you're talking about here. So, December 31, 112,000 customers. Now, 111,000 customers. So, the company is deliberately de-emphasizing products that are for smaller businesses in an effort to swim upstream. If you look at the company's revenue, it's having success there so that's churning some of its actual customers and replacing them with higher value customers, definitely something to watch. It's a strategy that management believes in and is pursuing aggressively, calling out that they get a 10X return, 10X the ARR from going after higher-end customers versus lower-end ones, but definitely something for investors to keep an eye on.
