Zendesk closes out 2020 as $1 billion turnover company; next step, $3 billion, says CEO Mikkel Svane

For Zendesk, 2020 was a landmark year as the firm broke through the $1 billion turnover mark, a target first laid down in 2016 and an achievement that came against a backdrop of exceptional circumstances, as Founder and CEO Mikkel Svane observes: 

We achieved this milestone during a year of unprecedented turbulence that has caused so much pain for so many people around the world. Yet over and over again, our customers have inspired us with their solidarity, with the grit, and with the perseverance they have shown throughout the year. 

Zendesk's full year 2020 revenue was $1.030 billion, up 26% year-on-year, with non-GAAP net income of $63.0 million. Q4 revenue was $283.5 million for the quarter ended 31 December 2020, up 23% year-on-year, with non-GAAP net income of $13.1 million.

The firm also reported the strongest growth in new bookings in the past 3 years, as well as a 60% increase in new and expansion bookings across the year as a whole. That includes the return of some users in COVID-stricken market sectors who cut back in Q2. About a third of them have returned, says Svane, with the remaining two-thirds out there as a target to regain: 

If you look at airline stats today, they're operating somewhere around 40% on average of capacity of last year, same thing for rides-share companies, for other companies in the hospitality industry. Those guys are slowly recovering, but we have a lot of opportunity as they recover fully post-pandemic.

What's interesting is, despite that, we've been able to grow. We've seen new customer activity at a very healthy rate, actually one of the best rates we've ever seen, as well as the fact that some of these more traditional companies have been looking for ways to get better at being online first.

On that last point, he adds: 

We are seeing a lot of customers really pivoting for this new economy, for this new reality, for this online-first model that we are living in right now, and we’re definitely seeing growth from that segment. We definitely still have a segment of customers that are suffering and then we have a lot of new businesses and a lot of new activity and also a lot of customers that are just killing it in this economy.

Messaging manoeuvres 

This week Zendesk upgraded messaging from an optional add-on to a core part of its customer service offering following a surge in demand for the tool as a customer contact channel over the past year. Messaging is a big focus right now, confirms Svane:

We're definitely seeing a big surge in demand and a big surge in these synchronous and halfway asynchronous messaging channels. We just released a report on the state of CX during the COVID year and there's no doubt that the messaging channels took the brunt of the surge in channels. What we have done with the recent suite release here is that we have tried to take the best of the Sunshine Conversations platform and really made it available for everybody, so everybody can use these channels without any development. 

We expect that to be very popular in the market. Everybody can engage with their customers in a really scalable way, in a really efficient way, and really get a lot of business insights over WhatsApp, over Facebook Messenger, over Line in Japan and all these other channels around the world that are so important for how we engage with each other, but more and more, especially now, with businesses where we are that are helping us run our lives and run our businesses

There may be further implications for the platform here, he adds:

There is definitely some dimension to that because we are going to have a view into a more instantaneous kind of behavior, a more real-time behavior among customers. Top of our priorities right now is to democratize access to these tools. We've done that before for e-mail. We've done that before for chat, making it available for everyone, and thereby just exploding the demand and the usage of these type of applications. That’s really our priority for messaging, first and foremost.

The company has also addressed enterprise pricing - ‘truly simplified pricing’ as the firm’s investor letter puts it. This is part of a wider push to making things easier, Svane expands:

A lot of it is driven by the behavior we saw in the market last year. Customers want to be able to hit the ground running. They want some of these things that have always been very, very important to them [and] to Zendesk like ease of use, instantaneous results, the time to get up and running…how you could quickly kind of change your set up, how you don't need a horde of developers to adapt through kind of changing conditions. 

I think it's one of these things that has really been true for business this year - change has been the only constant. So, we are trying to make all of these things much easier…all the decisions around what you need and what you don't need, we’re trying to take all of that off the table, make pricing and packaging much more transparent and easy. We believe very much, based on the initial reaction, this is what businesses want today.

Next up - triple revenues over the next five years, says Svane:

We believe that we have additional geographic expansion, a metric ton of market opportunity…we are getting very strong indicators  already in our current business and just a lot of potential from additional offerings in the market that we’re seeing. So, we feel confident. We feel good about it. It's a good target. Our confidence as we approach that target is going to increase over time.

My take

A solid end to a difficult year for everyone, with a psychological boost no doubt from having the billion dollar turnover box ticked. The focus on messaging’s role in customer service is an important pivot for the company and one that looks to be a savvy move as the COVID crisis continues to change consumer expectations of CX, a situation that’s not likely to change in the emerging Vaccine Economy of 2021.