Zendesk’s second quarter numbers topped analyst expectations late last week. Second quarter revenue increased 27% year-on-year to $246.7 million, with a GAAP operating loss of $31.5 million. But the firm struck a pragmatic note of caution in its near-term outlook, stating:
We believe our financial performance will continue to be impacted by uncertain and highly disrupted global economic conditions. Many customers continue to face end-market demand challenges and we are seeing higher levels of contraction compared to historical trends.
That said, Mikkel Svane, Founder & CEO, made the case for Zendesk’s product offerings being well-suited to the needs of organizations operating in the more volatile COVID-dominated economy:
It's more important now than ever for companies to connect with their customers globally and across the channels that customers are expecting to use today. So we have seen a rise in customer service [demands] for many of our customers, some dramatic rises for a large segment of our customers.
We have also seen much more reliance on self-service, on automated [interaction] and an increase in messaging and chat conversations. We have many examples. Like one customer who is trying a WhatsApp chat bot through our Samsung platform that helps people to self diagnose COVID-19 symptoms. We have another customer that has deployed self-service for government track and trace applications and our call center product, our voice products are helping multiple healthcare providers managing medical conversations around healthcare.
Customer needs in a crisis
The firm’s quarterly letter to shareholders contained a number of examples of the sort of customer engagements seen in recent months, such as the Children’s Council of San Francisco, a not-for-profit organization that connects healthcare workers and vulnerable families in order to access vital services. Since March 2020, there has been a tenfold increase in inquiries coming in compared to the same period in 2019. The organization is managing this spike using Zendesk Support and Guide to enable a multi-lingual help center with more than 80 accessible articles that provide parents, child care professionals and key workers with critical information and expertise.
In retail, European health and wellness firm Holland & Barrett has reported an uptick in online activity as lockdowns hit in-store footfall. A long term user of Zendesk Suite, the retailer has transitioned a number of store employees into online customer support staff to help to meet this increased demand.
Meanwhile online shipping service provider Packlink has seen support ticket volume increase by 138% and help center views by 80% since the outbreak of COVID-19 and the boom in online shopping that resulted. The firm’s customer support team has moved to working from home, using Zendesk Support, Guide, Gather, and Chat. To date, customer satisfaction levels are up 6% and the support team are able to answer three-quarters of requests and inquiries within 24 hours or less.
Customers have clear needs in crisis times, said Svane:
I guess that's definitely what our customers need right now - quick solutions. They need time to value very, very quickly…The conversation platform that is part of the Sunshine [CRM platform] has really seen very, very strong demand. This is a point in time where everybody sees the potential in better using these messaging channels over traditional methods. It’s much more convenient for us as consumers being trapped at home, rather than having to sit on the phone waiting for a long time on these very asynchronous conversations over e-mail. This [over the] internet conversation that works in your terms has turned out to be very, very convenient for the environment right now.
Agility is critical, he argued, both for customers and for Zendesk:
One of the principles we started with in our response to this is that we need to make organizations very, very agile…so we can quickly scale up and down, given the conditions in the market. I think that's very important because it's a very fluid situation. it’s a very volatile market and we have to constantly adapt to what we see and the signals we are getting from everywhere in the world. So we're really focusing on giving the organization as much agility as possible so we can be very fluid in our motion and accelerate investments where we think it makes sense, but also be ready to move those investments over to other areas.
There are large, complex organizations that have been running very, very quickly and we can decrease their time-to-value and really help them get results out of the gates. That is incredibly relevant right now., Some of our largest deals these days have very short cycles and customers basically are almost up-and-running before we have negotiated the deal.
We need to be more agile, not just in our IT systems, but as a population to come through this and to make sure we can get the economy up and running again and to make sure that we can come out of this stronger, not just as companies, but as a population, as a world. Zendesk is 100% behind this and we believe that's where we need to bring the world, so we don't hold each other back, so we can act correctly, so we can be agile, so we can keep up and live up to the expectations in the world around us and our customers have to us.
And it all comes down to trust, he concluded:
As a company, we have a responsibility to help customers through this and come out stronger on the other side. Also we're doing that because we want to, based on our relations and trust with these companies. As a business we've always been the kind of company that got up every morning and try to earn the trust of our customers. This is a defining moment for us.
Zendesk’s share price had a bit of a bumpy ride following the announcement of the quarterly numbers, with Wall Street jittery about the firm’s cautious outlook for the coming months. In fact, the Q2 numbers comfortably topped analysts expectations. The firm’s pragmatic outlook to the current market volatility seems sensible, while the case Svane makes for the need for higher levels of customer service and support remains sound. The focus on supporting longer term customer relationships espoused by the firm, even if means some shorter term volatility, is one that we’re likely to hear repeated in the coming months from other parties.