What: Shares of software-as-a-service provider Zendesk (NYSE:ZEN) jumped on Wednesday after the company reported solid third-quarter earnings, beating analyst estimates on all fronts. At 11 a.m. Wednesday, the stock was up about 11%.
So what: Zendesk reported quarterly revenue of $55.7 million, up 64% year-over-year and a few million dollars higher than the average analyst estimate. The company's deferred revenue balance has increased by 47% since the beginning of the year, and more than 30% of Zendesk's recurring revenue now comes from customers with more than 100 agents using its customer service platform.
Non-GAAP EPS came in at a loss of $0.05, an improvement compared to a loss of $0.09 during the third quarter of 2014, and four cents better than analysts were expecting. GAAP EPS was a loss of $0.22, better than a loss of $0.25 during the same period last year. GAAP operating expenses rose by 43% year-over-year, much slower than revenue, helping to drive the improvement in profitability.
Now what: In addition to reporting a solid third quarter, Zendesk provided strong guidance for the fourth quarter. The company expects revenue to be between $59 million and $61 million, representing year-over-year growth of 54% at the midpoint, and higher than the average analyst estimate of $57.5 million. Non-GAAP operating loss is expected to be between $6 million and $7 million, an improvement compared to a loss of $7.7 million during the fourth quarter of 2014.
There was a lot to like in Zendesk's earnings report, and it's no wonder that investors have sent the stock higher. The company continues to grow revenue quickly, and while Zendesk is still unprofitable, the numbers are moving in the right direction.
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.