Freshworks takes a calculated risk. Will it work?
Also read: Investors may find Dennis Woodside a better chief for Freshworks The Q1 FY24 results show 3% rise in revenues QoQ and losses had dropped to $23 mn versus losses of $28 mn in Q4FY23. The current guidance is that 2024 revenue will hit the band between $695 million to $705 million, with year-on-year growth of 17-18%, slightly lower than the 18-19% revenue growth the company had projected in February. Non-GAAP operating profit jumped to $21.8 million in Q1FY24 from $3.9 million in the year-ago period.
Non-GAAP operating profits exclude expenses like stock-based compensation, payroll taxes on employee stock transactions, amortization of intangibles, etc. The ESOP compensations would be the major item amongst these, for a company like FW. FW targets hitting the $1bn revenue mark by 2026, which might be achievable.
Apart from the transition in the C-suite, FW also announced the acquisition of Device42, an American IT-management firm, for $230 million in May 2024. This could help to accelerate the growth curve. However, in March, the Freshworks board cancelled an award of 6 million shares to Mathrubootham, which was scheduled to be given in tranches until 2029, on the basis of specific share price targets being hit.
It said the company had hit hurdles due to macro-economic conditions “entirely outside the control of the company’s leadership". Mathrubootham continues to hold a stake of 4.3% in FW. Apart from normal cyclical slowdowns, all SaaS businesses now have to reckon with the new threat of AI-based tools.
While Freshworks is already offering some of these, the competition in this space is intense. One key factor to consider may be the composition of FW’s customer-base. More than 51,000 clients are small and
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