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 8 cents per share, ahead of Wall Street’s target of 5 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 is an improvement on the $57.8 million loss it recorded a year earlier.

Freshworks founder and Chief Executive Girish Mathrubootham (pictured) said the company was able to outperform 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 to acquire new clients, close deals and maintain long-term relationships. With it, it has found a niche serving mid-sized 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 whom 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, officials said. The company also reported free cash flow of $22.1 million, up 22% from a year earlier.

Its ability to keep landing new customers is the reason behind its optimistic guidance going forward. For the full year fiscal 2023, Freshworks 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 cents 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 around 20 cents per share.

For the fourth quarter, Freshworks is calling for sales of between $156.7 million and $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 by another 2% in extended trading.

Photo: USISPF Communications/YouTube