B2B Payments

Why Zendesk's IPO Matters

Zendesk is expected to go public on Thursday in an IPO that may be very important to the postponed initial offering from Box. The on-demand customer service platform provider will be the first IPO from anyone in the Bay Area in over a month.

Investors appear to have become wary of high-growth, profitless tech companies lately leading to IPO delays by three local tech companies: Los Altos-based collaboration and storage software provider Box, Mountain View-based mobile device management software MobileIron and Santa Clara-based equipment maker Arista Networks.

Zendesk, led by CEO Mikkel Svanne, a week ago lowered the high end target for his offering from $150 million down to $128 million.

This is unusual because the number announced when a company first publicly discloses IPO plans is usually lower than where it actually prices. In the record first quarter, companies regularly upgraded that number before taking the plunge and then beat the new figure, too.

But the attitude on Wall Street has shifted and stocks of more than half of the U.S. companies that have gone public so far in 2014 are trading below their IPO prices. A Bessemer Venture Partners index of publicly traded cloud software companies has dropped by half since February.

Zendesk's revenue more than quadrupled between 2011 and 2013 to about $72 million. It grew in the first quarter by about 88 percent, year to year. However, now investors want more than the high-growth stories that enterprise cloud companies rode to big IPOs in the past year.

Zendesk's loss nearly doubled in the first quarter of this year, hitting $10.3 million from $5.4 million. If investors can look past Zendesk’s red ink and the IPO goes off successfully, then many other local tech companies could still go public by the end of June. However, if it doesn’t then it will be hard for many cloud software companies to find investors willing to pay the premiums that were previously given.

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