Stock Story -
Business software provider Freshworks (NASDAQ: FRSH) announced better-than-expected results in Q4 FY2023, with revenue up 20.2% year on year to $160.1 million. The company expects next quarter's revenue to be around $163.5 million, in line with analysts' estimates. It made a non-GAAP profit of $0.08 per share, improving from its profit of $0.01 per share in the same quarter last year.
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Freshworks (FRSH) Q4 FY2023 Highlights:
- Revenue: $160.1 million vs analyst estimates of $158.5 million (1% beat)
- EPS (non-GAAP): $0.08 vs analyst estimates of $0.05 ($0.03 beat)
- Revenue Guidance for Q1 2024 is $163.5 million at the midpoint, roughly in line with what analysts were expecting
- Management's revenue guidance for the upcoming financial year 2024 is $707.5 million at the midpoint, in line with analyst expectations and implying 18.6% growth (vs 19.8% in FY2023)
- Free Cash Flow of $28.59 million, up 29.5% from the previous quarter
- Net Revenue Retention Rate: 108%, in line with the previous quarter
- Customers: 20,261 customers paying more than $5,000 annually
- Gross Margin (GAAP): 83.1%, up from 81.1% in the same quarter last year
- Market Capitalization: $6.40 billion
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 SoftwareCompanies 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 GrowthAs you can see below, Freshworks's revenue growth has been strong over the last two years, growing from $105.5 million in Q4 FY2021 to $160.1 million this quarter.
This quarter, Freshworks's quarterly revenue was once again up a very solid 20.2% year on year. However, its growth did slow down compared to last quarter as the company's revenue increased by just $6.56 million in Q4 compared to $8.47 million in Q3 2023. 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 18.7% year on year to $163.5 million, in line with the 20.1% year-on-year increase it recorded in the same quarter last year. For the upcoming financial year, management expects revenue to be $707.5 million at the midpoint, growing 18.6% year on year compared to the 19.8% increase in FY2023.
Large Customers Growth This quarter, Freshworks reported 20,261 enterprise customers paying more than $5,000 annually, an increase of 710 from the previous quarter. That's quite a bit more contract wins than last quarter and quite a bit above what we've typically observed in past quarters, demonstrating that the business has good sales momentum. We've no doubt shareholders will take this as an indication that the company's go-to-market strategy is working very well.
Key Takeaways from Freshworks's Q4 Results We were impressed by Freshworks's significant improvement in new large contract wins and free cash flow this quarter. We were also glad next year's revenue guidance is strong. Overall, this quarter's results seemed fairly positive and shareholders should feel optimistic. The market was likely expecting more, however, and the stock is down 2.9% after reporting, trading at $21.18 per share.
