Freshworks tops expectations and raises full-year outlook, sending its stock higher
Freshworks Inc., the customer service and support software provider that competes with Salesforce Inc., forecast annual revenue and profit above expectations on the back of “sustained demand” for its relatively affordable products, sending its stock higher after-hours.
The company delivered strong third-quarter results too, with earnings before certain costs such as stock compensation coming to eight cents per share, ahead of Wall Street’s target of five cents. Revenue rose 19% from a year earlier, to $153.6 million, beating the analysts’ estimate of $150.7 million.
Despite the earnings beat, Freshworks remains unprofitable overall. It posted a net loss of $31 million in the quarter, though that’s an improvement on the $57.8 million loss it recorded a year earlier.
Freshworks founder and Chief Executive Girish Mathrubootham (pictured) said the company outperformed its estimates across all of its key financial metrics. “Our market traction is fueled by continued product innovation that brings generative AI and rapid time to value to companies of all sizes,” he added.
The company competes with larger rivals in the customer relationship management software industry, such as Salesforce, Workday Inc., Zendesk Inc. and Oracle Corp. Its platform is focused on helping businesses acquire new clients, close deals and maintain long-term relationships. It has found a niche serving midsized companies rather than large enterprises. Its platform is said to be more user-friendly, easier to implement and less expensive.
These benefits have helped Freshworks to continue winning deals, and in recent months it has even won a number of larger customers, many of which are looking for more compelling and affordable alternatives to the established CRM platforms.
During the quarter, the number of customers that deliver at least $5,000 in annual recurring revenue rose 17% from a year earlier, to 19,551. The company also reported free cash flow of $22.1 million, up 22% from a year earlier.
Liz Miller of Constellation Research Inc. said Freshworks’ growth isn’t about taking market share away from its rivals, but rather due to its “ability to move upmarket, gaining ground in global regions that other players struggle to enter, such as in Asia and Africa.” It’s also getting deals with larger companies than before, she said.
The analyst also called out Freshwork’s recent appointment of Mika Yamamoto as its new chief customer and marketing officer. “Mika isn’t just a marketer or just a CMO, she is a growth driver and someone I consider to be one of the leading CMOs in global B2B marketing,” Miller said. “This is a major pick up for Freshworks and one that signals that the executive team is ready for its next stage of growth and maturity.”
Freshworks’ ability to keep landing new customers is one of the main reasons behind its optimistic guidance. For the full year fiscal 2023, it said it now expects revenue of between $593 million and $595.5 million, up from an earlier outlook of $587 million to $595 million. It also increased its profit forecast, saying it’s now looking for earnings of between 23 and 25 cents per share, up from an earlier range of 18 cents to 22 cents.
Wall Street is looking for full-year revenue of $591 million and earnings of 20 cents per share.
For the fourth quarter, Freshworks is calling for sales of $156.7 million to $159.3 million, the midpoint of which is just ahead of the analysts’ consensus estimate of $157.6 million.
Freshworks’ stock, which had gained just over 1% in the regular trading session, ticked up 2% more in extended trading.
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