Freshworks, a San Mateo-based software company with roots in Chennai, reported a 33% increase in third-quarter revenue to $128.8 million in 2022 compared to 2021. According to a constant currency basis, the growth is 37%.
The rise in new client acquisition between July and September was primarily responsible for the increase in revenues. Plume, Altasciences, Viessmann, and Dynata are some of the new clients for the sole Indian SaaS business to list on the NASDAQ.
An important statistic for SaaS companies is the number of customers that contribute more than $5,000 in annual recurring revenue (ARR), which climbed by 19% annually to 16,713. In the third quarter, the business acquired about 1,700 new customers as a result of “good momentum in new business led by Freshservice”. Overall, Freshworks has over 61,000 customers now.
“On the positive side, net new customer acquisition was really good in the quarter and did not seem to slow at all. On the negative side, customer expansions are starting to slow a bit for the company— a little bit more than historical expansion rates. And the driver there is that their customers are concerned with the macro (environment),” says Scott Berg, Managing Director/ Senior Research Analyst, Needham & Company, an investment banking, and asset management firm.
Companies are adding fewer seats to the Freshworks platform as a result of their slower recruiting plans, which affects net retention rates, a measure of revenue derived from existing clients, and a sign of prospective business development.
In comparison to the $107.4 million reported during the same period the previous year, the company reported a net loss of $57.8 million in the third quarter, a decrease of 46%.
The annual revenue forecast for Freshworks remains unchanged from the second quarter. It anticipates earning $129.2–131.2 million in revenue during the fourth quarter and $494–496 million overall.
The macroeconomic circumstances, which are characterized by rising inflation rates and a coming recession, are concerning for the tech industry, especially Freshworks.
“While our new business activity picked up, expansion slowed down as companies reduced their growth forecast and headcount needs. On a positive note, we saw good new business growth in North America, in the mid-market and enterprise,” said Girish Mathrubootham, Co-founder and CEO of Freshworks, in the company’s earnings call.
He continued by saying that the company’s overall gross churn rate is relatively static and that in the third quarter, the churn in the small- and medium-sized business segment stabilized.
On November 1, the closing share price of Freshworks on the NASDAQ was $13.16; however, following the release of the results, the price rose 4.71% to $13.78. Like other tech equities, the company’s share price has declined over the past few months.
“The company’s execution over the last four quarters has been very good. So, the downturn in stock price is less to do with company-specific items, and more to do with the overall markets going down,” Scott says.
“Freshworks is a growth company. They’re not a value company. They’re trying to grow fast and so, they’re losing a little money. That type of company is just out of favor at the moment. But in probably six to 12 months, I expect the stock to recover well,” Scott says.