Zendesk Reports In-Line Earnings, Announces Momentive Acquisition; Shares Crash 14.5%

Shares of customer intelligence services provider Zendesk, Inc. (ZEN) closed 14.5% down on Friday after the company reported in-line earnings for the third quarter of 2021 and announced the acquisition of experience management company Momentive Global, Inc. (MNTV) on Thursday.

Headquartered in California, Zendesk offers software-as-a-service (Saas) products related to customer support, sales and other customer communications.

Earnings per share (EPS) came in at $0.17 during the quarter, in line with the Street’s estimate and the year-ago figure. Revenue increased 32% year-over-year to $347 million, exceeding analysts’ expectations of $335.1 million.

Notably, the company provided guidance for the fourth quarter and full-year 2021. It expects revenue in the ranges of $366 million to $372 million and $1.329 billion to $1.335 billion for the fourth quarter and full year, respectively.

Meanwhile, Zendesk has signed an agreement to acquire California-based Momentive, including its platform SurveyMonkey, for nearly $28 per share.

As per the terms of the agreement, Momentive shareholders will get 0.225 shares of Zendesk for each Momentive share. (See Insiders’ Hot Stocks on TipRanks)

Zendesk expects the transaction to help achieve its revenue target of $3.5 billion in 2024, a year ahead of the original plan. Furthermore, following the completion of the acquisition, Momentive CEO Zander Lurie will continue to lead the company’s management team.

The CEO of Zendesk, Mikkel Svane, said, “We’re very excited to have them join the Zendesk mission along with Momentive’s market research and insights products and together create a powerful new Customer Intelligence company. We will deliver a rich, colorful picture of every customer so businesses really understand their customers and can build more authentic relationships.”

The acquisition is expected to close in the first half of next year, following which Zendesk stockholders will own nearly 78% of the combined company and Momentive stockholders will own the remaining 22%.

Following the announcements, Morgan Stanley (MS) analyst Stan Zlotsky maintained a Buy rating on the stock but lowered the price target to $135 from $185 (32.6% upside potential).

The analyst said, “The company’s large and unexpected deal for a slower growth Momentive overshadowed the company Q3 results, which were ahead of low expectations.”

Overall, the stock has a Moderate Buy consensus rating based on 10 Buys and 5 Holds. The average Zendesk price target of $144.75 implies 42.2% upside potential. Shares have lost 29.4% over the past six months.

TipRanks’ Website Traffic Tool, which uses data from SEMrush Holdings (SEMR), the world’s biggest website usage monitoring service, offers insight into Zendesk’s performance.

According to the tool, the company’s website traffic registered an 11.16% decrease in global visits in September. Moreover, the website traffic has declined 10.61% year-to-date.

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