Executive Summary:
Freshworks Inc. is a cloud-based software company founded in 2010. They provide a suite of software as a service (SaaS) products for customer relationship management (CRM), IT service management (ITSM), and e-commerce marketing. With a focus on user-friendliness and affordability, Freshworks targets both large enterprises and small and medium-sized businesses (SMBs). The company, now headquartered in San Mateo, California.
Freshworks reported revenue of $160.1 million for the fourth quarter of 2023. This represented a 20% year-over-year increase.
Stock Overview:
| Ticker | $FRSH | Price | $12.32 | Market Cap | $3.68B |
| 52 Week High | $24.98 | 52 Week Low | $12.19 | Shares outstanding | 219.7M |
Company background:
Freshworks Inc., a cloud-based software company, was founded by Girish Mathrubootham and Shan Krishnasamy in Chennai, India. The company started with a focus on customer service software but has grown into a full suite of SaaS products.
Freshworks is known for its user-friendly interfaces and affordable pricing models, making their solutions attractive to businesses of all sizes. This includes both large enterprises and small and medium-sized businesses (SMBs).
Freshworks has attracted funding from leading investors such as Accel, Sequoia Capital, and Tiger Global Management. This funding has helped them develop their product suite and expand their global reach. As they continue to grow, Freshworks faces competition from established players like Salesforce in CRM and Zendesk in customer service.
Recent Earnings:
Revenue and Growth: Freshworks reported total revenue reached $165.1 million, representing a year-over-year increase of 20%. This growth remained consistent at 19% even after adjusting for currency fluctuations, demonstrating solid performance.
EPS and Growth: Freshworks is still reporting a GAAP loss from operations of $40.0 million. They achieved a non-GAAP net income per share of $0.10, based on diluted weighted-average shares outstanding. This translates to a significant increase from $0.03 per share in the first quarter of 2023.
The Market, Industry, and Competitors:
Freshworks market is expected to continue experiencing significant growth due to the increasing importance of customer experience and digital transformation. The rise of cloud-based solutions and the growing adoption of CRM functionalities by businesses of all sizes further fuels this expansion. Analysts predict the global CRM market to reach a value of over $100 billion by 2030, with a Compound Annual Growth Rate (CAGR) exceeding 10%.
Freshworks, with its focus on user-friendliness and affordability, is well-positioned to capitalize on this market growth. The company targets both established enterprises and the under-served mid-market segment. Freshworks could achieve a CAGR exceeding the overall market growth, potentially reaching $2 billion or more in revenue by 2030.
Unique differentiation:
Established CRM giants: Freshworks contends with industry leaders like Salesforce in the CRM space. Salesforce offers a comprehensive suite of CRM solutions catering primarily to large enterprises. While Freshworks provides a strong value proposition for SMBs and mid-market companies with its user-friendly interface and competitive pricing, it needs to constantly innovate and expand its feature set to compete effectively with Salesforce’s established dominance.
Customer service specialists: In the customer service realm, Zendesk is a major competitor. Zendesk offers a robust customer service platform with features like ticketing, live chat, and self-service portals. Freshworks’ Freshdesk solution directly competes with Zendesk, and both companies vie for market share in the customer service software market.
Other SaaS players: Beyond these direct competitors, Freshworks faces competition from other players offering overlapping functionalities. For instance, companies like HubSpot offer a combination of CRM, marketing automation, and content management tools, posing an indirect threat by potentially fulfilling multiple needs for businesses with a single platform.
Affordability: Compared to some competitors, Freshworks offers its solutions at competitive pricing points. This makes their software attractive to small and medium-sized businesses (SMBs) and the under-served mid-market segment, which might find the solutions from established players cost-prohibitive.
Tailored for the Mid-Market: Unlike industry giants like Salesforce who primarily cater to large enterprises, Freshworks specifically targets the mid-market segment. This allows them to tailor their products and support to the unique needs of these growing businesses.
Suite vs Point Solutions: Freshworks offers a comprehensive suite of software solutions encompassing CRM, ITSM, and e-commerce marketing. This integrated approach can be appealing to businesses seeking a unified platform to manage various customer and service interactions.
Management & Employees:
Girish Mathrubootham (Founder & Executive Chairman): After leading Freshworks from its founding in 2010 to a successful IPO in 2021, Girish transitioned to the role of Executive Chairman in May 2024. He remains the Chairman of the Board of Directors.
Dennis Woodside (CEO & President): Previously serving as Freshworks’ President, Dennis assumed the CEO role in May 2024. He brings a wealth of experience to the position.
Financials:
Freshworks has demonstrated consistent revenue growth, establishing itself as a rising star in the cloud-based business software market. Their revenue has grown at a Compound Annual Growth Rate (CAGR) exceeding 20%. This translates to a significant increase in total revenue year-over-year. This indicates improvement in their operational efficiency and path to future profitability.
Freshworks is still a high-growth company focused on investing in product development, market expansion, and customer acquisition. This can sometimes lead to a lag in profitability as they prioritize growth over immediate short-term profits.
Technical Analysis:
The stock is in a long term stage 4 markdown (bearish) on the monthly, weekly and daily charts. We would wait for a confirmation of a reversal and possibly wait for a retest before we enter.
Bull Case:
Innovation and Acquisitions: Freshworks’ focus on continuous product development and strategic acquisitions allows them to stay ahead of the curve and potentially expand their feature set and market reach.
Strong Value Proposition: Freshworks positions itself with a user-friendly interface and competitive pricing, making its software attractive to SMBs and the mid-market. This value proposition can fuel customer acquisition and expansion within these segments.
Bear Case:
Pressure on Margins: Freshworks’ focus on affordability to attract SMBs and the mid-market could put pressure on their profit margins. This might be especially true if they struggle to scale their customer base and achieve economies of scale.
Slow Path to Profitability: While Freshworks is showing progress towards profitability, they are still a high-growth company prioritizing investment in product development and customer acquisition. This can lead to a delayed timeline for achieving sustained profitability, potentially disappointing investors seeking short-term gains.
Valuation Concerns: Freshworks’ stock price might be inflated based on future growth potential. If the company fails to meet aggressive growth expectations, the stock price could experience a correction.
