Freshworks (FRSH) AI Stock Analysis

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Freshworks

(NASDAQ:FRSH)

63Neutral

Freshworks shows strong financial performance with significant revenue growth and improved cash flow. However, profitability remains a challenge as indicated by negative profit margins and a high P/E ratio. Technical analysis suggests bearish momentum, while the positive earnings call underscores potential for future growth, despite some challenges.

Positive Factors

Customer Growth

Freshworks added 2,600 net new customers, its highest quarterly adds in four years, aided by initiatives to improve free-to-paid conversion rates.

Product Innovation

The company is innovating with AI, including the Freddy AI Agent, which went generally available in October.

Stock Support

A new $400M repurchase program is expected to continue supporting the stock, adding to cash generation and capital return.

Negative Factors

Economic Risks

Recession risks and inflationary pressures both in the U.S. and abroad could negatively impact Freshworks results.

Growth Challenges

Lapping of Device42 slows growth in 2H, where there is a need to build confidence in upward revisions before getting on board.

Freshworks (FRSH) vs. S&P 500 (SPY)

Market Cap

$3.99B

Dividend YieldN/A

Average Volume (3M)3.04M

Price to Earnings (P/E)―

Beta (1Y)1.67

Revenue Growth20.79%

EPS Growth32.50%

CountryUS

Employees4,400

SectorTechnology

Sector Strength40

IndustrySoftware - Application

Share Statistics

EPS (TTM)-0.32

Shares Outstanding243,010,240

10 Day Avg. Volume3,745,974

30 Day Avg. Volume3,037,406

Financial Highlights & Ratios

PEG RatioN/A

Price to Book (P/B)N/A

Price to Sales (P/S)6.50

Price to Cash Flow (P/CF)28.30

P/FCF Ratio34.10

Enterprise Value/Market CapN/A

Enterprise Value/RevenueN/A

Enterprise Value/Gross ProfitN/A

Enterprise Value/EbitdaN/A

Forecast

1Y Price Target

$21.07

Price Target Upside59.38% Upside

Rating ConsensusModerate Buy

Number of Analyst Covering15

Freshworks Business Overview & Revenue Model

Company DescriptionFreshworks Inc., a software development company, provides modern software-as-a-service products worldwide. Freshworks Inc. was formerly known as Freshdesk Inc. and changed its name to Freshworks Inc. in June 2017. The company was incorporated in 2010 and is headquartered in San Mateo, California.

How the Company Makes MoneyFreshworks generates revenue primarily through a subscription-based model for its software-as-a-service (SaaS) offerings. Customers pay recurring fees, typically on a monthly or annual basis, to access the company's suite of products. These products include Freshdesk for customer support, Freshsales for sales automation, and Freshservice for IT service management, among others. Freshworks also offers tiered pricing plans, which provide different levels of functionality and support to meet the varying needs of businesses. Additionally, the company benefits from strategic partnerships and integrations with other technology providers, enhancing its product offerings and expanding its market reach. Upselling and cross-selling additional features or higher-tier plans to existing customers also contribute significantly to Freshworks' revenue growth.

Freshworks Financial Statement Overview

Summary

Freshworks exhibits strong revenue growth and a solid financial position with low leverage and substantial cash reserves. However, challenges remain in achieving profitability, as indicated by negative profit margins. The significant improvement in cash flow generation is a positive indicator of future operational stability.

Income Statement

Positive

Freshworks has shown strong revenue growth, with a TTM increase of 20.8%. Gross profit margin is robust at 84.3% TTM, indicating effective cost management. However, the company is yet to achieve profitability, with a negative net profit margin of -13.2% TTM. Although EBIT and EBITDA margins are negative, there is a positive trend in narrowing losses.

Balance Sheet

Positive

The company maintains a strong equity position with an equity ratio of 70.6% TTM. Freshworks has manageable leverage, with a low debt-to-equity ratio of 0.03 TTM. Return on equity is negative due to the unprofitability of operations, but the overall balance sheet is stable with significant cash reserves.

Cash Flow

Positive

Freshworks has achieved significant improvement in cash flows, with free cash flow growing by 91.6% TTM. The operating cash flow to net income ratio is positive, highlighting efficient cash conversion despite negative net income. The company continues to generate positive free cash flow, enhancing liquidity and operational flexibility.

Dec 2024	Dec 2023	Dec 2022	Dec 2021	Dec 2020
Breakdown
Income Statement		Total Revenue
720.42M	596.43M	498.00M	371.02M	249.66M
	Gross Profit
607.09M	493.06M	402.23M	292.99M	197.17M
	EBIT
-138.61M	-170.17M	-233.37M	-204.78M	-56.11M
	EBITDA
-109.53M	-158.03M	-221.87M	-194.03M	-44.94M
	Net Income Common Stockholders
-95.37M	-137.44M	-232.13M	-192.00M	-57.29M
Balance Sheet		Cash, Cash Equivalents and Short-Term Investments
1.07B	1.19B	1.15B	1.32B	238.12M
	Total Assets
1.61B	1.46B	1.38B	1.48B	367.42M
	Total Debt
30.22M	29.49M	34.95M	0.00	0.00
	Net Debt
-590.09M	-458.63M	-269.13M	-747.86M	-95.38M
	Total Liabilities
473.96M	384.51M	328.40M	244.77M	3.06B
	Stockholders Equity
1.14B	1.07B	1.05B	1.24B	-2.70B
Cash Flow		Free Cash Flow
151.47M	77.84M	-14.77M	2.34M	21.77M
	Operating Cash Flow
160.65M	86.18M	-2.52M	11.46M	32.53M
	Investing Cash Flow
38.80M	158.50M	-284.83M	-420.30M	-11.43M
	Financing Cash Flow
-67.26M	-60.62M	-156.35M	1.06B	-1.91M

Freshworks Technical Analysis

Technical Analysis Sentiment

Negative

Last Price13.22

Price Trends

50DMA

16.03

Negative

100DMA

16.25

Negative

200DMA

14.18

Negative

Market Momentum

MACD

-0.52

Positive

RSI

36.52

Neutral

STOCH

13.45

Positive

Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For FRSH, the sentiment is Negative. The current price of 13.22 is below the 20-day moving average (MA) of 14.40, below the 50-day MA of 16.03, and below the 200-day MA of 14.18, indicating a bearish trend. The MACD of -0.52 indicates Positive momentum. The RSI at 36.52 is Neutral, neither overbought nor oversold. The STOCH value of 13.45 is Positive, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Negative sentiment for FRSH.

Freshworks Risk Analysis

Freshworks disclosed 65 risk factors in its most recent earnings report. Freshworks reported the most risks in the “Finance & Corporate” category.

Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy

Latest Risks Added 0 New Risks

Freshworks Peers Comparison

Overall Rating

UnderperformOutperform

Sector (57)

Financial Indicators

Name	Overall Rating	Market Cap	P/E Ratio	ROE	Dividend Yield	Revenue Growth	EPS Growth
BILL	65 Neutral	$4.48B	469.48	2.11%	―	16.42%	―
GRND	64 Neutral	$3.73B	―	-966.61%	―	32.71%	-131.68%
FRSH	63 Neutral	$3.99B	―	-8.63%	―	20.79%	32.50%
WK	60 Neutral	$3.90B	―	99.24%	―	17.24%	57.87%
ASAN	58 Neutral	$3.79B	―	-92.26%	―	10.94%	4.54%
Sector *	57 Neutral	$20.24B	9.51	-13.28%	2.72%	5.43%	-24.54%
KC	56 Neutral	$3.22B	―	-32.59%	―	8.56%	13.34%

* Technology Sector Average

Performance Comparison

FRSH

Freshworks

12.57

-5.71

-31.24%

Workiva

66.59

-14.01

-17.38%

BILL

Bill.com Holdings

41.35

-22.77

-35.51%

Kingsoft Cloud Holdings

12.65

9.72

331.74%

ASAN

Asana

15.48

0.52

3.48%

GRND

Grindr

17.55

6.83

63.71%

Freshworks Earnings Call Summary

Earnings Call Date: Feb 11, 2025 | % Change Since: -25.98% | Next Earnings Date: Apr 29, 2025

Earnings Call Sentiment Positive

The earnings call highlighted significant achievements in revenue growth, customer base expansion, and AI product adoption, with strong operating margins and free cash flow. However, challenges such as FX impacts and pressure on net dollar retention were noted. Overall, the positives largely outweighed the negatives, suggesting a strong performance with room for continued growth.

Highlights

Strong Revenue Growth

Q4 revenue grew 22% year-over-year to $194.6 million, exceeding expectations. Full year 2024 revenue was strong, driven by significant growth in key segments.

Customer Base Expansion

Freshworks ended the year with over 72,200 customers, adding over 2,600 net customers in Q4, the largest quarterly increase in four years.

Employee Experience (EX) Business Growth

EX business surpassed $400 million in ARR, growing 35% year-over-year on a constant currency basis, with a strong emphasis on mid-market and enterprise customers.

AI Product Adoption

Freddy Copilot ended the year with more than 2,200 customers, reflecting 30% growth quarter-over-quarter, and over 50% attach rates for new deals of $30,000 or more.

Strategic Partnerships and New Customers

New strategic agreement with Unisys and onboarding of notable customers including Airbus, AMC Networks, and New Balance.

Record Operating Margin and Free Cash Flow

Non-GAAP operating margin reached 21% in Q4, with adjusted free cash flow of $41.7 million, representing a 46% year-over-year growth.

Lowlights

FX Impact on Results

FX rates negatively impacted ARR growth by 3 percentage points, equating to a $17.5 million reduction in ARR.

Pressure on Net Dollar Retention

Net dollar retention rate slightly decreased, with expectations of continued pressure due to expansion constraints in customer accounts.

Challenges in Larger Customer Cohort Growth

Slower growth in customers contributing more than $50,000 in ARR, partially due to FX impacts and fewer but larger deals.

Company Guidance

During Freshworks' fourth quarter and full year 2024 earnings call, the company reported a strong performance, surpassing key metrics and estimates. Freshworks achieved a revenue of $194.6 million in Q4, marking a 22% year-over-year growth. The company also reported a non-GAAP operating margin of 21% and generated an adjusted free cash flow of $41.7 million, resulting in a 21% free cash flow margin. Freshworks ended the year with over 72,200 customers and added more than 2,600 net new customers in Q4. The company achieved a net dollar retention rate of 105% on a constant currency basis. Key accomplishments included exceeding $400 million in annual recurring revenue (ARR) for the Employee Experience (EX) business, which grew 35% year-over-year on a constant currency basis, and achieving over $360 million in ARR for the Customer Experience (CX) business, with a 7% year-over-year growth. Freshworks also highlighted strategic initiatives in AI, with Freddy Copilot reaching over 2,200 customers and a 50% attach rate for new deals of $30,000 or more. Looking ahead, Freshworks provided revenue guidance for Q1 2025 in the range of $190 million to $193 million, with a growth expectation of 15% to 17% year-over-year. For the full year 2025, the company expects revenue between $809 million and $821 million, representing a 12% to 14% increase, and aims to generate approximately $210 million in free cash flow.

Freshworks Corporate Events

Stock BuybackBusiness Operations and StrategyFinancial Disclosures

Freshworks Reports Strong Growth and Announces Stock Buyback

Positive

Nov 6, 2024

Freshworks Inc. announced a robust third quarter of 2024 with a notable 22% year-over-year revenue growth to $186.6 million and improvements in cash flow margins, reflecting strong market positioning among mid-market and enterprise clients. The company also revealed a stock repurchase program worth up to $400 million, showcasing its commitment to shareholder value amidst dynamic market conditions. Freshworks’ strategic focus on AI-enhanced services continues to attract major clients, supporting its growth trajectory.

Glossary

OutperformA stock rated as "Outperform" is expected to perform better than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock is likely to deliver higher returns compared to the average returns of other stocks in the same sector or market index. Investors might consider this stock a good buying opportunity.

NeutralA stock rated as "Neutral" is expected to perform in line with the overall market or a specific benchmark. This rating indicates that the stock is neither particularly attractive nor unattractive for investment. Investors may consider holding onto the stock, as it is not expected to either significantly outperform or underperform the market.

UnderperformA stock rated as "Underperform" is expected to perform worse than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock may deliver lower returns compared to the average returns of other stocks in the same sector or market index. Investors might consider selling the stock or avoiding it as an investment.

Disclaimer

This AI Analyst Stock Report is automatically generated by our AI systems using advanced algorithms and publicly available financial, technical, and market data. While the information provided aims to be accurate and insightful, it is intended for informational purposes only and should not be considered financial advice. Any content created by an AI (Artificial Intelligence) system may contain inaccuracies and/or contain errors. Investing in stocks carries inherent risks, and past performance is not indicative of future results. This report does not account for your personal financial circumstances, objectives, or risk tolerance. Always conduct your own research or consult with a qualified financial advisor before making investment decisions. The analysis and recommendations provided are based on historical and current data and may not fully reflect future market conditions or unexpected developments. Neither the creators of this report nor its affiliated entities guarantee the accuracy, completeness, or reliability of the information presented. Use this report at your own discretion and risk.