Freshworks (FRSH) AI Stock Analysis

• Market Cap: $4.32B
• Dividend Yield: N/A
• Average Volume (3M): 3.22M
• Price to Earnings (P/E): ―
• Beta (1Y): 1.61
• Revenue Growth: 20.46%
• EPS Growth: 39.37%
• Country: US
• Employees: 4,400
• Sector: Technology
• Sector Strength: 77
• Industry: Software - Application
• EPS (TTM): 0.18
• Shares Outstanding: 241,553,180
• 10 Day Avg. Volume: 2,613,176
• 30 Day Avg. Volume: 3,223,272
• PEG Ratio: -2.60
• Price to Book (P/B): 4.05
• Price to Sales (P/S): 0.00
• P/FCF Ratio: 25.22
• Enterprise Value/Market Cap: N/A
• Enterprise Value/Revenue: N/A
• Enterprise Value/Gross Profit: N/A
• Enterprise Value/Ebitda: N/A
• 1Y Price Target: $19.82
• Price Target Upside: 37.45% Upside
• Rating Consensus: Moderate Buy
• Number of Analyst Covering: 12

• Rating: 71 Outperform
• Price Target: $16.00 ▲( 10.96% Upside)

Freshworks' strong financial performance, particularly in revenue growth and cash flow management, significantly boosts its overall score. The positive results and strategic advancements highlighted in the recent earnings call further strengthen the stock's outlook. However, the valuation remains a concern due to the negative P/E ratio, and technical indicators are mixed, suggesting cautious optimism.

Positive Factors

Financial Performance

Freshworks reported solid Q1 results, as revenue topped the high-end of guidance by more than $3M (+19% growth), operating margins improved by 10-points year-over-year, and calculated billings grew by 17%.

Share Buyback

Freshworks repurchased $111.8M of stock in the quarter, notably chipping away at its $400M buyback authorization, and more than offsetting normal dilution as fully diluted share count came down by 3M shares sequentially.

Strategic Initiatives

Freshworks continued to execute across its three strategic imperatives: maintaining momentum in its Employee Experience (EX) business, expanding its AI capabilities, and driving growth.

Negative Factors

Economic Challenges

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

Growth Concerns

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

Freshworks Business Overview & Revenue Model

Company Description

Freshworks Inc. (FRSH) is a global software company that provides innovative customer engagement solutions to businesses of all sizes. The company is headquartered in San Mateo, California, and operates in the enterprise software sector. Freshworks offers a suite of software products designed to improve customer engagement, including Freshdesk, Freshservice, Freshsales, and several other tools that simplify customer support, IT service management, CRM, and sales management.

How the Company Makes Money

Freshworks generates revenue primarily through a subscription-based model for its cloud-based software solutions. The company's key revenue streams include subscription fees from its diverse product offerings, which cater to customer support, IT service management, sales, and marketing automation. Freshworks' products are typically offered as Software-as-a-Service (SaaS), with customers paying recurring fees for access to the platform. The company leverages a freemium model, where basic features are available for free, and advanced features are offered through paid tiers. Additionally, Freshworks benefits from strategic partnerships and integrations with other technology providers, enhancing its value proposition and expanding its customer base. The company also invests in expanding its global presence, targeting small and medium-sized businesses as well as larger enterprises, which contributes to its earnings 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
TTM	Dec 2024	Dec 2023	Dec 2022	Dec 2021	Dec 2020
Income Statement		Total Revenue
751.55M	720.42M	596.43M	498.00M	371.02M	249.66M
	Gross Profit
634.23M	607.09M	493.06M	402.23M	292.99M	197.17M
	EBIT
-116.86M	-138.61M	-170.17M	-233.37M	-204.78M	-56.11M
	EBITDA
-98.52M	-109.53M	-158.03M	-221.87M	-194.03M	-44.94M
	Net Income Common Stockholders
-73.35M	-95.37M	-137.44M	-232.13M	-192.00M	-57.29M
Balance Sheet		Cash, Cash Equivalents and Short-Term Investments
1.15B	1.07B	1.19B	1.15B	1.32B	238.12M
	Total Assets
1.39B	1.61B	1.46B	1.38B	1.48B	367.42M
	Total Debt
26.18M	38.29M	29.49M	34.95M	0.00	0.00
	Net Debt
-318.30M	-582.02M	-458.63M	-269.13M	-747.86M	-95.38M
	Total Liabilities
340.40M	473.96M	384.51M	328.40M	244.77M	3.06B
	Stockholders Equity
1.05B	1.14B	1.07B	1.05B	1.24B	-2.70B
Cash Flow		Free Cash Flow
167.07M	151.47M	77.84M	-14.77M	2.34M	21.77M
	Operating Cash Flow
178.00M	160.65M	86.18M	-2.52M	11.46M	32.53M
	Investing Cash Flow
122.81M	38.80M	158.50M	-284.83M	-420.30M	-11.43M
	Financing Cash Flow
-174.58M	-67.26M	-60.62M	-156.35M	1.06B	-1.91M

Freshworks Technical Analysis

• Technical Analysis Sentiment: Negative
• Last Price: 14.42
• 50DMA: Positive
• 100DMA: Negative
• 200DMA: Positive
• MACD: Positive
• RSI: Neutral
• STOCH: 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 14.42 is below the 20-day moving average (MA) of 14.81, above the 50-day MA of 14.24, and above the 200-day MA of 14.39, indicating a neutral trend. The MACD of 0.19 indicates Positive momentum. The RSI at 47.94 is Neutral, neither overbought nor oversold. The STOCH value of 9.89 is Positive, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Negative sentiment for FRSH.

Freshworks Peers Comparison

Name	Overall Rating	Market Cap	P/E Ratio	ROE	Dividend Yield	Revenue Growth	EPS Growth
GRND	73 Outperform	$4.70B	―	-63.52%	―	30.08%	-196.62%
FRSH	71 Outperform	$4.32B	―	-6.85%	―	20.46%	39.37%
BILL	69 Neutral	$4.57B	482.28	0.97%	―	14.52%	―
ASAN	66 Neutral	$4.11B	―	-92.26%	―	10.94%	4.54%
Sector *	61 Neutral	$11.29B	10.07	-7.05%	2.96%	7.47%	-10.75%
WK	54 Neutral	$3.76B	―	99.24%	―	17.36%	32.19%
KC	54 Neutral	$3.75B	―	-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.