NEW YORK, Nov. 18, 2019 /PRNewswire/ -- Pomerantz LLP announces that a class action lawsuit has been filed against Zendesk, Inc. ("Zendesk" or the "Company") (NYSE: ZEN) and certain of its officers. The class action, filed in United States District Court, for the Northern District of California, and docketed under 19-cv-07361, is on behalf of a class consisting of investors who purchased or otherwise Zendesk securities between February 6, 2019 and October 1, 2019, both dates inclusive (the "Class Period"), seeking to pursue remedies under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act") and SEC Rule 10b-5 promulgated thereunder.
If you are a shareholder who purchased Zendesk securities between February 6, 2019, and October 1, 2019, both dates inclusive, you have until December 23, 2019, to ask the Court to appoint you as Lead Plaintiff for the class. A copy of the Complaint can be obtained at www.pomerantzlaw.com. To discuss this action, contact Robert S. Willoughby at [email protected] or 888.476.6529 (or 888.4-POMLAW), toll-free, Ext. 9980. Those who inquire by e-mail are encouraged to include their mailing address, telephone number, and number of shares purchased.
Zendesk is a Software as a Service ("SaaS") provider that purports to help clients better communicate with their customers through online customer chats and data analysis. The Company provides single customer service interface to organizations to manage all their one-on-one customer interactions, track and predict common questions, and provide a seamless path to answers. The employees of Zendesk's clients are called "agents" of Zendesk, and their customers are Zendesk's "end users."
The Complaint alleges that throughout the Class Period, Defendants made materially false and misleading statements regarding the Company's business, operational and compliance policies. Specifically, Defendants made false and/or misleading statements and/or failed to disclose that: (i) Zendesk's clients had been subject to data breaches dating back to 2016; (ii) Zendesk was experiencing slowing demand for its SaaS offerings, particularly in Germany, the United Kingdom ("U.K."), and Australia, due in large part to political uncertainty and China trade issues there; and; (iii) as a result of the foregoing, Zendesk's business metrics and financial prospects were not as strong as Defendants had led the market to believe during the Class Period.
On July 30, 2019, Zendesk issued a press release and conducted a conference call to announce its second quarter 2019 ("2Q19") financial results for the period ended June 30, 2019. Zendesk reported net losses that had grown to $54.5 million, or $0.50 per share, which was significantly larger than the $34.4 million, or $0.33 per share, reported in second quarter 2018 ("2Q18"), despite the fact that 2Q19 revenues had increased from $141.9 million in 2Q18 to $194.6 million in 2Q19. The Company also reported revenue growth of 37%, which was below the 38%-41% range the Company had reported over the prior eight quarters.
In addition to the disappointing financial results, Zendesk disclosed that its sales growth in the Europe, Middle East, and Africa ("EMEA") and Asia-Pacific ("APAC") regions "didn't quite live up to [Defendants'] own expectations, and lagg[ed] other regions." For example, growth in the EMEA region fell to 33% year over year, down significantly from the 38% growth reported in first quarter 2018 ("1Q18"), 42% during fiscal year 2018 ("FY18"), and 41% during fiscal year 2017 ("FY17"). Growth in the APAC region fell to 31% in 2Q19, down considerably from the 39% growth reported in first quarter 2019 ("1Q19"). Zendesk blamed a mix of macro and operational issues that had been driving the weakness. With respect to fiscal year 2019 ("FY19") guidance, the Company cautioned that it was "maintaining a prudent view on the year as [Defendants] gain[ed] a better understanding of the dynamics, internal and external, in EMEA and APAC," and thus expected ongoing revenue growth of just 30%. Zendesk lowered its FY19 outlook for free cash flow from a range of $55-$65 million to a range of just $35-$45 million, citing increased vendor prepayments, capital expenditures, and acquisition costs.
Following these disclosures, the price of Zendesk common stock declined precipitously, falling nearly $10.00 per share from its close of $93.12 per share on July 30, 2019, to close at $83.56 per share on July 31, 2019, on unusually high volume of more than 8.6 million shares traded, or more than twice the average daily volume over the preceding ten trading days.
Prior to September 24, 2019, a third party alerted Zendesk to the fact that the personally identifiable data ("PID") of its chat and support accounts had been breached. By September 24, 2019, Zendesk had internally confirmed the size and scope of the breach. The Company's internal investigation revealed that some 10,000 accounts opened before November 2016 had been breached, including agent names and contact information, along with user names and hashed and salted agent and end user passwords. Adversely impacted PID also included Transport Layer Security encryption keys that customers gave to Zendesk and the configuration settings of apps installed from the Zendesk app market or private apps.
On October 2, 2019, Zendesk for the first time publicly disclosed the data breach, stating then that the data breach only affected customers who had signed up prior to November 1, 2016.
On news of the data breach, the price of Zendesk common stock fell another $2.90 per share to close at $69.81 per share on October 2, 2019, again on unusually high volume of more than 3.3 million shares traded.
The Pomerantz Firm, with offices in New York, Chicago, Los Angeles, and Paris is acknowledged as one of the premier firms in the areas of corporate, securities, and antitrust class litigation. Founded by the late Abraham L. Pomerantz, known as the dean of the class action bar, the Pomerantz Firm pioneered the field of securities class actions. Today, more than 80 years later, the Pomerantz Firm continues in the tradition he established, fighting for the rights of the victims of securities fraud, breaches of fiduciary duty, and corporate misconduct. The Firm has recovered numerous multimillion-dollar damages awards on behalf of class members. See www.pomerantzlaw.com.
Robert S. Willoughby
SOURCE Pomerantz LLP