Zendesk, Inc. CAPEX surged on 77.0% and Revenue jumped on 39.2%
02/05/2019 • About Zendesk, Inc. (
$ZEN) • By InTwits
Zendesk, Inc. reported 2018 financial results today. Here are the key drivers of the company's long term financial model:
- Zendesk, Inc. is a fast growth stock: 2018 revenue growth was 39.2%, 5 year revenue CAGR was 52.7% at 2018 ROIC -22.3%
- The company operates at negative EBITDA Margin: -16.9%
- Zendesk, Inc. motivates its personel by high Stock Based Compensation (SBC): average SBC/Revenue for 2014-2018 was 21.6% while average EBITDA Margin was -21.7% for the sames years
- Zendesk, Inc. has high CAPEX intensity: 5 year average CAPEX/Revenue was 11.6%. At the same time it's in pair with industry average of 13.3%
- CAPEX is quite volatile: $46m in FY2018, $27m in FY2017, $16m in FY2016, $18m in FY2015, $17m in FY2014
- The company has unprofitable business model: ROIC is -22.3%
- It operates with medium-size leverage: Net Debt/EBITDA is 0.3x while industry average is -2.2x
Below you can find a comprehensive analysis of the key data driving the company's performance and the stock price.
Revenue and profitability
The company's Revenue jumped on 39.2%. Revenue growth showed acceleration in 18Q4 - it increased 41.3% YoY. Revenue decline was accelerating on average at -10.1 pp per annum in 2014-2018. Revenue decline was accompanies by EBITDA margin decline. EBITDA Margin decreased slightly on 1.7 pp from 29.6% to 27.9% in 2018. EBITDA Margin grew at 6.5 pp per annum in the last 5 years.
Gross Margin decreased slightly on 0.65 pp from 70.4% to 69.7% in 2018. During 2014-2018 Gross Margin topped in 2017 at 70.4%. SG&A as a % of Revenue decreased on 2.3 pp from 68.3% to 66.0% in 2018. SG&A as a % of Revenue declined at -5.2 pp per annum in 2014-2018. Stock Based Compensation (SBC) as a % of Revenue showed almost no change in 2018. SBC as a % of Revenue followed a declining trend at -1.6 pp per annum in 2014-2018.
Net Income margin increased slightly on 1.9 pp from -23.7% to -21.9% in 2018. Net Income margin grew at 7.9 pp per annum in 2014-2018.
Investments (CAPEX, working capital and M&A)
The company's CAPEX/Revenue was 7.1% in 2018. The company showed decline in CAPEX/Revenue of 6.2 pp from 13.3% in 2015 to 7.1% in 2018. Average CAPEX/Revenue for the last three years was 7.1%. CAPEX as a % of Revenue declined at -4.0 pp per annum in 2014-2018.
Accounts receivable as a % of Revenue increased slightly on 0.97 pp from 13.3% to 14.2% in 2018. Accounts payable as a % of Revenue increased on 5.1 pp from 4.2% to 9.3% in 2018.
Zendesk, Inc. has spent
$79m on M&A in 2018 which accounts for 13.3% of revenue.
Return on investment
The company operates at negative ROIC (-22.3%) and ROE (-34.0%). ROIC increased on 9.9 pp from -32.2% to -22.3% in 2018. ROE decreased on 2.7 pp from -31.3% to -34.0% in 2018. ROIC stuck to a growing trend at 11.8 pp per annum in the last 5 years.
Leverage (Debt)
Debt level is 0.3x Net Debt / EBITDA and Debt / EBITDA. Net Debt / EBITDA didn't change in 2018. Debt jumped while cash surged on 15.7%.
The company has no short term refinancing risk: short term debt is zero.
Management team
Mikkel Svane is a Zendesk, Inc.'s CEO. Mikkel Svane is a founder and has spent 12 years with the company. CEO total compensation was
$3,303,579 in 2018 which included
$420,000 salary. The company's CFO is Elena Gomez. Elena Gomez has 3 years tenure at the company.
1.8% of the company is owned by insiders. Insider ownership didn't change in 2018.
At the end of financial year the company had 2,740 employees. The number of employees jumped on 33.0%. Average revenue per employee in 2018 was
$218,520 and it increased on 4.6%.
Financial and operational results
FY ended 12/31/2018
Zendesk, Inc. ($ZEN) key annual financial indicators| mln. $ | 2014 | 2015 | 2016 | 2017 | 2018 | 2018/2017 |
|---|
P&L
|
|---|
| Revenue | 127.0 | 208.8 | 312.8 | 430.2 | 598.7 | 39.2% |
| Gross Profit | 81.0 | 141.6 | 218.9 | 302.7 | 417.5 | 37.9% |
| SG&A | 110.7 | 162.0 | 226.0 | 293.6 | 395.2 | 34.6% |
| EBITDA | -54.7 | -63.2 | -70.6 | -74.2 | -101.4 | |
| EBIT | -66.1 | -83.0 | -98.1 | -106.1 | -137.9 | |
| Tax | -0.3 | 0.3 | 1.0 | -1.5 | -12.1 | |
| Net Income | -67.4 | -84.1 | -97.6 | -102.1 | -131.1 | |
| Stock Based Compensation | 32.1 | 52.1 | 73.4 | 84.6 | 119.5 | 41.3% |
Balance Sheet
|
|---|
| Cash | 80.3 | 216.2 | 93.7 | 109.4 | 126.5 | 15.7% |
| Accounts Receivable | 11.5 | 26.2 | 37.3 | 57.1 | 85.3 | 49.4% |
| Accounts Payable | 4.8 | 9.3 | 4.6 | 5.3 | 16.8 | 216.9% |
| Short Term Debt | 3.1 | 0.0 | 0.0 | 0.0 | 0.0 | |
| Long Term Debt | 3.9 | 0.0 | 0.0 | 0.0 | 458.2 | |
Cash flow
|
|---|
| Capex | 29.7 | 27.7 | 27.0 | 23.9 | 42.3 | 77.0% |
| Acquisitions | | 1.1 | | 16.5 | 79.4 | 381.9% |
Ratios
|
|---|
| Revenue growth | 76.3% | 64.3% | 49.9% | 37.5% | 39.2% | |
| EBITDA growth | 229.2% | 15.6% | 11.7% | 5.1% | 36.6% | |
|
|---|
| Gross Margin | 63.8% | 67.8% | 70.0% | 70.4% | 69.7% | -0.7% |
| EBITDA Margin | -43.0% | -30.3% | -22.6% | -17.3% | -16.9% | 0.3% |
| EBIT Margin | -52.1% | -39.7% | -31.4% | -24.7% | -23.0% | 1.6% |
| SG&A, % of revenue | 87.2% | 77.6% | 72.2% | 68.3% | 66.0% | -2.3% |
| SBC, % of revenue | 25.3% | 25.0% | 23.5% | 19.7% | 20.0% | 0.3% |
| Net Income Margin | -53.1% | -40.3% | -31.2% | -23.7% | -21.9% | 1.9% |
| CAPEX, % of revenue | 23.4% | 13.3% | 8.6% | 5.6% | 7.1% | 1.5% |
|
|---|
| ROIC | -77.3% | -39.8% | -32.9% | -32.2% | -22.3% | 9.9% |
| ROE | | -41.3% | -32.9% | -31.3% | -34.0% | -2.7% |
People
|
|---|
| Insider ownership | 1.8% | 1.8% | 1.8% | 1.8% | 1.8% | 0.0% |
| Employees | | | 1,630 | 2,060 | 2,740 | 33.0% |
| Revenue/Employee, th. $ | | | 192 | 209 | 219 | 4.6% |
Zendesk, Inc. ($ZEN) key quoterly financial indicators
| mln. $ | 18Q1 | 18Q2 | 18Q3 | 18Q4 | | YoY change |
|---|
P&L
|
|---|
| Revenue | 130 | 142 | 155 | 172 | | 38.2% | 39.0% | 37.9% | 41.3% |
| EBITDA | -24 | -25 | -26 | -27 | | | | | |
| Net Income | -29 | -34 | -34 | -33 | | | | | |
Balance Sheet
|
|---|
| Cash | 609 | 493 | 157 | 127 | | 457.6% | 379.4% | 69.7% | 15.7% |
| Short Term Debt | 0 | 0 | 0 | 0 | | | | | |
| Long Term Debt | 440 | 446 | 452 | 458 | | | | | |
Ratios
|
|---|
| Gross Margin | 69.9% | 68.9% | 69.6% | 70.4% | | -0.2% | -1.1% | -0.3% | -1.0% |
| EBITDA Margin | -18.3% | -17.5% | -16.6% | -15.8% | | 0.2% | 1.4% | -0.2% | -0.1% |
| Net Income Margin | -22.6% | -24.2% | -22.1% | -19.3% | | 4.1% | 1.5% | 0.9% | 1.2% |
Peers in Application Software
Below you can find Zendesk, Inc. benchmarking vs. other companies in Application Software industry. It's shown for the period of 5 years for the key financial metrics. Each table has median value for all the companies in the industry together with individual financial data of the top-5 companies in the industry by particular financial metric.
Top companies by Revenue growth, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| nFusz Inc ($FUSZ) | | | | | 433.3% |
| CloudCommerce Inc ($CLWD) | | -38.1% | 247.6% | 40.9% | 301.1% |
| Seven Stars Cloud Group, Inc. ($SSC) | | 134.7% | 663.8% | 310.3% | 161.7% |
| Aurora Mobile Limited ($JG) | | | | 304.9% | 150.8% |
| Intelligent Systems Corporation ($INS) | | 14.2% | 71.0% | 12.2% | 119.0% |
| |
|---|
| Median (151 companies) | -43.3% | 13.5% | 13.6% | 14.8% | 15.2% |
|---|
| Zendesk, Inc. ($ZEN) | | 64.3% | 49.9% | 37.5% | 39.2% |
Top companies by Gross margin, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Skkynet Cloud Systems Inc ($SKKY) | 99.7% | 97.4% | 98.0% | 97.6% | 96.5% |
| hopTo Inc ($HPTO) | 91.8% | 87.8% | 95.9% | 98.2% | 95.4% |
| Aware, Inc. ($AWRE) | 75.4% | 87.2% | 90.3% | 94.6% | 92.3% |
| Alteryx, Inc. ($AYX) | 77.5% | 80.5% | 81.3% | 83.4% | 91.0% |
| Aspen Technology, Inc. ($AZPN) | 86.5% | 88.7% | 89.7% | 90.2% | 89.9% |
| |
|---|
| Median (150 companies) | 62.8% | 61.7% | 63.8% | 64.4% | 65.7% |
|---|
| Zendesk, Inc. ($ZEN) | 63.8% | 67.8% | 70.0% | 70.4% | 69.7% |
Top companies by EBITDA margin, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Aspen Technology, Inc. ($AZPN) | 34.5% | 42.2% | 46.0% | 45.2% | 43.3% |
| ANSYS, Inc. ($ANSS) | 45.9% | 45.8% | 45.1% | 41.9% | 41.4% |
| Paycom Software, Inc. ($PAYC) | 15.1% | 19.5% | 35.1% | 34.4% | 35.9% |
| j2 Global, Inc. ($JCOM) | 41.6% | 40.6% | 41.7% | 36.5% | 35.7% |
| Adobe Inc. ($ADBE) | 17.5% | 25.9% | 31.2% | 34.2% | 35.3% |
| |
|---|
| Median (152 companies) | -10.1% | -9.4% | -4.7% | -3.3% | -3.2% |
|---|
| Zendesk, Inc. ($ZEN) | -43.0% | -30.3% | -22.6% | -17.3% | -16.9% |
Top companies by CAPEX/Revenue, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| TimefireVR Inc ($TFVR) | 0.0% | 350.5% | 4.3% | | 1,021.9% |
| MGT Capital Investments Inc ($MGTI) | 0.0% | 36.5% | 221.4% | 129.8% | 344.5% |
| Integrated Ventures Inc ($INTV) | | | | | 199.9% |
| ShotSpotter, Inc. ($SSTI) | | 18.3% | 28.9% | 27.1% | 24.3% |
| Ellie Mae, Inc. ($ELLI) | 12.3% | 20.6% | 16.7% | 21.1% | 19.4% |
| |
|---|
| Median (153 companies) | 2.8% | 2.7% | 2.9% | 2.3% | 2.4% |
|---|
| Zendesk, Inc. ($ZEN) | 23.4% | 13.3% | 8.6% | 5.6% | 7.1% |
Top companies by ROIC, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| InsPro Technologies Corp ($ITCC) | -558.9% | | | | 127.4% |
| Manhattan Associates, Inc. ($MANH) | 64.8% | 78.7% | 99.3% | 102.5% | 80.9% |
| Intuit Inc. ($INTU) | 34.2% | 23.7% | 52.1% | 72.6% | 66.8% |
| Aspen Technology, Inc. ($AZPN) | 133.4% | | | | 58.1% |
| Paycom Software, Inc. ($PAYC) | 16.7% | 30.5% | 75.4% | 51.1% | 47.5% |
| |
|---|
| Median (179 companies) | -14.2% | -11.2% | -9.2% | -10.2% | -9.3% |
|---|
| Zendesk, Inc. ($ZEN) | -77.3% | -39.8% | -32.9% | -32.2% | -22.3% |
Top companies by Net Debt / EBITDA
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Upland Software, Inc. ($UPLD) | | | 16.4x | 115.6x | 16.7x |
| Nuance Communications, Inc. ($NUAN) | 7.9x | 5.7x | 5.3x | 7.1x | 15.2x |
| Asure Software Inc ($ASUR) | 3.4x | 4.5x | 3.6x | 9.5x | 14.5x |
| SS&C Technologies Holdings, Inc. ($SSNC) | 1.7x | 7.3x | 4.6x | 3.1x | 8.5x |
| Avaya Holdings Corp. ($AVYA) | | | | | 7.4x |
| |
|---|
| Median (70 companies) | -1.4x | -1.0x | -0.9x | -0.8x | -0.7x |
|---|
