Quiet Period Expiration For Zendesk IPO Could Send Investors To Nirvana

May.28.14 | About: Zendesk, Inc. (ZEN)


The 25-day SEC-enforced "quiet period" on the ZEN IPO comes to an end on June 8th.

ZEN provides an SaaS customer service platform, competing with salesforce.com and Freshdesk.

ZEN's strong underwriters will likely attempt to push ZEN's already strong market performance even higher with the release of positive research reports on June 8th, creating a buying opportunity.

June 8 will conclude the 25-day quiet period on underwriter research that began with Zendesk, Inc. (NYSE:ZEN)'s May 14 IPO, allowing the IPO underwriters to publish research reports on the provider of an SaaS customer service platform and likely propelling at least a temporary increase in the price of ZEN shares.

After pricing its IPO at the midpoint of the expected range at $9 per share, ZEN saw an explosive first-day return of over 49% and never looked back, posting consistent gains over the past two weeks. ZEN closed at $16.36 per share on May 23.

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ZEN's IPO underwriters, including Credit Suisse Securities (USA) LLC; Morgan Stanley & Co. LLC; Goldman, Sachs & Co.; Canaccord Genuity Inc.; and Pacific Crest Securities LLC, will try to push the stock to greater heights with the release of positive research reports with the conclusion of the quiet period.

Strong Underwriters Will Likely Attempt To Push Stock Even Higher

The correlation between the visibility and quantity of IPO underwriters and an increase in the price of shares at the conclusion of the quiet period has been empirically established, both by the results of recent academic studies and by the data generated through our past two years of research.

This increase in share price typically emerges several days ahead of the quiet period expiration as experienced investors anticipate positive reports and begin to buy up shares, realizing that the underwriters will scarcely publish negative information about a recently underwritten firm. The early purchases generate the perception of rising demand, and cause share prices to rise before the expiration of the quiet period.

ZEN Business Helps Ease Customer Experience
ZEN offers a Software-as-a-Service customer service platform designed to enhance customer engagement and to allow firms to provide service via popular media, such as chat, email, websites, voice, and social media. The platform also accommodates the growing numbers of customers who prefer self-service by providing answers through knowledge bases and communities. ZEN's software assists organizations in improving their customer service by providing feedback through analytics and performance benchmarking.

ZEN boasts more than 42,000 customer accounts, with customers across over 140 countries using the platform in over 40 languages; the firm's revenue is primarily derived through subscription sales. Approximately 70% of ZEN's sales leads are generated through non-paid sources, allowing the firm to reap savings on marketing and sales costs.

For additional information, see our preview of the ZEN IPO here.

Less "Zen" Competitors
ZEN faces numerous competitors seeking to cash in on the increasing complexities of customer service. salesforce.com, inc. (NYSE:CRM)'s simply named Desk.com provides an array of customer service options similar to Zendesk's platform, including social media engagement tools. Freshdesk also provides a popular cloud-based platform with many of the same tools offered by Zendesk, and offers a twist on quality control by giving service agents the opportunity to earn points and move up a digital leaderboard by successfully completing tickets.

ZEN also competes with large integrated systems vendors that have traditionally provided customer service solutions, some of which have access to financial resources and brand recognition far beyond those of ZEN. These competitors include the likes of Microsoft Corporation (NASDAQ:MSFT), Verint Systems Inc. (NASDAQ:VRNT), Oracle Corporation (NYSE:ORCL), BMC Software Inc., and Hewlett-Packard Company (NYSE:HPQ).

Handsomely Paid Management
Co-founder Mikkel Svane has served as the CEO of ZEN since 2007; he was appointed Chair of ZEN's board of directors in January 2014. Before founding ZEN, Mr. Svane founded and served as the CEO of Caput A/S, and also worked as a technology consultant. Mr. Svane received an A.P. in marketing management from Arhus Kobmandsskole.

ZEN has paid its executives handsomely in recent years. In 2013, Senior Vice President Adrian McDermott received a total compensation of $1.9 million, and Senior Vice President Marcus Bragg received a total compensation of $2.9 million. We believe that these compensation figures are excessive in light of the firm's recent losses - the firm posted net losses of $24.4 million and $22.6 million for calendar 2012 and 2013, respectively.

An "Enlightened" Opportunity For Investors

ZEN's hot start on the market is likely more than just a fluke.

The firm has succeeded despite murmurs of a tech slowdown, and the stock has received a continual stream of praise from the media.

Moreover, ZEN's platform is solid, with a comprehensive and eye-pleasing offering that has received consistently positive reviews; ZEN's successful IPO even provoked a desperate response from Desk.com, which has offered free service for the rest of 2014 to customers who agree to switch from ZEN's platform.

Though ZEN's price is far from settled and the threat of a tech slide remains real, investors should consider buying into the firm with the approach of the quiet period expiration - ZEN's underwriters certainly will have plenty to talk about.

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Disclosure: I am long ZEN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.