Yahoo Finance Freshworks's (NASDAQ:FRSH) Q1: Beats On Revenue But Stock Drops 17.9%
Business software provider Freshworks (NASDAQ: FRSH) beat analysts' expectations in Q1 CY2024, with revenue up 19.9% year on year to $165.1 million. On the other hand, next quarter's revenue guidance of $169 million was less impressive, coming in 1.8% below analysts' estimates. It made a non-GAAP profit of $0.10 per share, improving from its profit of $0.03 per share in the same quarter last year.
Is now the time to buy Freshworks? Find out in our full research report.
Freshworks (FRSH) Q1 CY2024 Highlights:
Revenue: $165.1 million vs analyst estimates of $163.5 million (small beat)
EPS (non-GAAP): $0.10 vs analyst estimates of $0.08 (31.6% beat)
Revenue Guidance for Q2 CY2024 is $169 million at the midpoint, below analyst estimates of $172.1 million
The company dropped its revenue guidance for the full year from $707.5 million to $700 million at the midpoint, a 1.1% decrease
Gross Margin (GAAP): 84.3%, up from 81.7% in the same quarter last year
Free Cash Flow of $38.67 million, up 35.3% from the previous quarter
Net Revenue Retention Rate: 106%, in line with the previous quarter
Customers: 20,549 customers paying more than $5,000 annually
Market Capitalization: $5.33 billion
“Freshworks delivered 20% revenue growth with improving profitability and a strong free cash flow margin in Q1,” said Girish Mathrubootham, CEO and Founder of Freshworks.
Founded in Chennai, India in 2010 with the idea of creating a “fresh” helpdesk product, Freshworks (NASDAQ: FRSH) offers a broad range of software targeted at small and medium-sized businesses.
Sales Software
Companies need to be able to interact with and sell to their customers as efficiently as possible. This reality coupled with the ongoing migration of enterprises to the cloud drives demand for cloud-based customer relationship management (CRM) software that integrates data analytics with sales and marketing functions.
Sales Growth
As you can see below, Freshworks's revenue growth has been very strong over the last three years, growing from $80.59 million in Q1 2021 to $165.1 million this quarter.
This quarter, Freshworks's quarterly revenue was once again up 19.9% year on year. However, its growth did slow down compared to last quarter as the company's revenue increased by just $5.03 million in Q1 compared to $6.56 million in Q4 CY2023. While we'd like to see revenue increase by a greater amount each quarter, a one-off fluctuation is usually not concerning.
Next quarter's guidance suggests that Freshworks is expecting revenue to grow 16.5% year on year to $169 million, slowing down from the 19.5% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 18.7% over the next 12 months before the earnings results announcement.
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Large Customers Growth
This quarter, Freshworks reported 20,549 enterprise customers paying more than $5,000 annually, an increase of 288 from the previous quarter. That's a bit fewer contract wins than last quarter and quite a bit below what we've typically observed over the past four quarters, suggesting that its sales momentum with large customers is slowing.
Key Takeaways from Freshworks's Q1 Results
It was good to see Freshworks slightly improve its gross margin this quarter, but its full-year revenue guidance was below expectations. Additionally, it reported smaller net additions due to increased small-to-medium-sized business churn. Overall, the results could have been better. The company is down 17.9% on the results and currently trades at $14.97 per share.
Freshworks may have had a tough quarter, but does that actually create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.
