Freshworks (FRSH) AI Stock Analysis

• Market Cap: $4.21B
• Dividend Yield: N/A
• Average Volume (3M): 3.58M
• Price to Earnings (P/E): ―
• Beta (1Y): 1.64
• Revenue Growth: 20.46%
• EPS Growth: 39.37%
• Country: US
• Employees: 4,400
• Sector: Technology
• Sector Strength: 67
• Industry: Software - Application
• EPS (TTM): 0.18
• Shares Outstanding: 241,553,180
• 10 Day Avg. Volume: 4,149,722
• 30 Day Avg. Volume: 3,575,170
• PEG Ratio: N/A
• Price to Book (P/B): N/A
• Price to Sales (P/S): 0.00
• Price to Cash Flow (P/CF): 0.00
• P/FCF Ratio: 0.00
• Enterprise Value/Market Cap: 0.78
• Enterprise Value/Revenue: N/A
• Enterprise Value/Gross Profit: 5.43
• Enterprise Value/Ebitda: N/A
• 1Y Price Target: $19.86
• Price Target Upside: 36.40% Upside
• Rating Consensus: Moderate Buy
• Number of Analyst Covering: 15

Freshworks is positioned well with strong revenue growth and robust cash flow management, despite current profitability challenges. Technical indicators show potential short-term momentum, though valuation remains high given the negative earnings. The recent earnings call highlighted significant progress in AI adoption and enterprise customer wins, though some challenges remain, such as slower CX growth and economic uncertainties.

Positive Factors

AI Innovation

Further Freddy product releases should provide momentum in adoption, customer addition metrics, and ARPU growth offering Freshworks an incremental tailwind.

Financial Performance

Freshworks reported solid Q1 results, as revenue topped the high-end of guidance by more than $3M, with operating margins improving by 10-points year-over-year and calculated billings growing by 17%.

Strategic Expansion

Freshworks is executing well on its strategic imperatives, such as maintaining momentum in its Employee Experience business, expanding its AI capabilities, and driving growth.

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 the second half, where there is a need to build confidence in upward revisions before gaining investor support.

Freshworks Business Overview & Revenue Model

Company Description

Freshworks 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 Money

Freshworks 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 shows a promising revenue growth trajectory and maintains strong gross margins, positioning itself well in the software application industry. While the balance sheet is stable with minimal leverage, profitability remains a significant hurdle. The company demonstrates excellent cash flow management, which could support long-term growth initiatives. Focus on achieving net profitability will be crucial for future financial strength.

Income Statement

Freshworks has shown strong revenue growth with a TTM increase from $720.42M to $751.55M, translating to a growth rate of 4.32%. The gross profit margin is robust at 84.42% for TTM, indicative of efficient cost management. However, the company has yet to achieve profitability, with negative net profit and EBIT margins at -9.76% and -15.55% respectively. The EBITDA margin, though negative, shows an improving trend.

Balance Sheet

The balance sheet reflects stability with a low debt-to-equity ratio of 0.03, suggesting low financial leverage. The equity ratio stands at 68.90%, showing a strong equity base. However, consistent net losses impact return on equity, which remains negative at -6.91% TTM, indicating challenges in generating shareholder returns.

Cash Flow

Freshworks displays solid cash flow metrics, with a significant increase in free cash flow to $167.07M TTM, a growth of 10.32% from the previous year. The operating cash flow to net income ratio is impressive at -2.43, reflecting robust cash generation relative to net losses. The company maintains a healthy free cash flow to net income ratio of -2.28, signaling efficient cash utilization despite ongoing profitability challenges.

Breakdown
Dec 2024	Dec 2023	Dec 2022	Dec 2021	Dec 2020
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
38.29M	29.49M	34.95M	0.00	0.00
	Net Debt
-582.02M	-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: Positive
• Last Price: 14.56
• 50DMA: Positive
• 100DMA: Negative
• 200DMA: Positive
• MACD: Negative
• RSI: Neutral
• STOCH: Neutral

Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For FRSH, the sentiment is Positive. The current price of 14.56 is above the 20-day moving average (MA) of 13.63, above the 50-day MA of 14.35, and above the 200-day MA of 14.26, indicating a bullish trend. The MACD of 0.15 indicates Negative momentum. The RSI at 55.59 is Neutral, neither overbought nor oversold. The STOCH value of 60.82 is Neutral, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Positive sentiment for FRSH.

Freshworks Peers Comparison

Name	Overall Rating	Market Cap	P/E Ratio	ROE	Dividend Yield	Revenue Growth	EPS Growth
BILL	71 Outperform	$4.62B	482.28	0.97%	―	14.52%	―
FRSH	70 Neutral	$4.21B	―	-6.85%	―	20.46%	39.37%
GRND	64 Neutral	$4.58B	―	-966.61%	―	32.71%	-131.68%
ASAN	63 Neutral	$3.86B	―	-92.26%	―	10.94%	4.54%
Sector *	60 Neutral	$10.94B	10.37	-6.73%	2.98%	7.75%	-12.61%
WK	54 Neutral	$3.76B	―	99.24%	―	17.36%	32.19%
KC	51 Neutral	$4.11B	―	-32.59%	―	8.56%	13.34%

Freshworks Corporate Events

Freshworks Reports Strong Growth and Announces Stock Buyback

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.