Zendesk stock prediction as it agrees to buy SurveyMonkey owner Momentive

By:
on Oct 29, 2021
  • Zendesk shares on Friday nosedived 18% after agreeing to buy Momentive.
  • The company is acquiring the SurveyMonkey owner in stock for approximately $28 per share.
  • Zendesk’s Q3 earnings matched estimates on Thursday after markets closed.

On Friday, Zendesk Inc. (NYSE:ZEN) shares plummeted more than 8% after agreeing to buy Momentive. The company is buying the SurveyMonkey owner in an all-stock deal worth about $28 per share of Momentive stock. Every Monetive shareholder will receive 0.225 shares of Zendesk stock for each share of Momentive stock.

As a result, Momentive shareholders will own 22% of the combined company while Zendesk shareholders will own 78%. The acquisition is expected to close within the first half of 2022 and will accelerate Zendesk’s annual revenue to about $3.5 billion by 2025, one year ahead of the previous forecast.

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In the most recent quarter, Zendesk’s FQ3 earnings per share matched the non-GAAP expectation of $0.17 but missed on a GAAP basis. On the other hand, revenue for the period increased by 32.4% Y/Y to $346.9 million, $11.7 million ahead of estimates.

Should you bet on ZEN’s growth?

From an investment perspective, Zendesk shares trade at a steep forward P/E ratio of 117.60, making the stock too expensive for value investors.

However, analysts expect its earnings per share to grow by 52.41% next year and at an average annual rate of 27.50% for the next five years. 

Therefore, the stock could be a compelling option for growth investors willing to overlook the short-term turbulence.

Source – TradingView

Technically, Zendesk shares seem to have recently plunged to complete a downward breakout from a descending channel formation. As a result, the stock moved closer to the oversold conditions of the 14-day RSI, creating a perfect opportunity for a rebound.

Therefore, investors could target potential rebound profits at about $111.35, or higher at $125.86, while $84.26 and $69.74 are support levels.

A rebound could be imminent

In summary, given Zendesk’s exciting growth prospects, Friday’s pullback could be an exciting opportunity to buy shares of the Software as a Service (SaaS) company.

Therefore, although the stock seems significantly overvalued, its movement towards oversold conditions could be a catalyst for a rebound.

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