Zendesk: Ease Of Use And Agility To Unlock Upmarket Adoption

Mar. 16, 2020 1:20 PM ETZendesk, Inc. (ZEN)
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  • Zendesk’s focus on ease of use will speed up its upmarket onboarding process as it expands its direct and indirect sales channels to drive growth.
  • The revenue contribution from clients with 100+ agents increased by 300 bps YoY.
  • Upmarket growth will also drive further margin expansion. Long-term RPO grew by ~1.3 times to drive ~28% of overall RPO in 2020.
  • Amid uncertainty leading to various guidance cuts and pulls, Zendesk is firm with its $1 billion FY revenue guidance and ~30% YoY growth for 2020.


Since 2019, Zendesk (NYSE:ZEN) has been pushing for wider adoption of its Suite and Sunshine products from the enterprise clients. This move has been successful so far, given the 300 bps YoY increase in revenue contribution from clients with 100+ agents and solid ~36% YoY revenue growth. In addition, RPO (Revenue Performance Obligation), which represents unrecognized future revenues under contract, grew by ~57%. Much of that was driven by ~1.3x increase in long-term contracts often associated with upmarket deals. In FY 2020, the company will invest more into go-to-market areas such as sales enablement, product innovation, and indirect channels to continue to boost the upmarket growth at scale. In our view, central to the growth plan is Zendesk's ease of use and agility as a platform, which will be the key to reducing the adoption barrier at the upmarket segment.

Catalyst: Focus on Ease of Use and Agility

Moving towards the upmarket segments will allow Zendesk to both improve its retention rate and cash flow profitability due to typically longer contracts and deal sizes. Traditionally, aiming for higher-valued clients has been crucial in helping a fast-growing cloud software company like Zendesk to be on a path to net profitability in the long term. Zendesk's major move into the upmarket began with the introductions of its CRM platform, Sunshine, and its omnichannel CX platform, Suite in mid-2018. As the company ramped up upmarket clients sometime last year, the overall positioning has also shifted from Support to Customer Experience. These initiatives enabled Zendesk to not only increase the upmarket marketability but also ease of use and agility of its platform, which the CEO Mikkel Svane considers as differentiating factors during the most recent earnings call:

I do want to say that, like, a lot of our differentiation is in the agility and the

This article was written by

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Asset manager investing in technology opportunities driving disruptive innovation globally.

Disclosure: I am/we are 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.

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