Freshworks beats Q3 estimates; employees can encash 20% of their stock as Diwali gift

Chennai/Bengaluru: Freshworks has reported a smaller-than-expected loss and better-than-estimated revenue for the quarter through September, when the software-as-a-service company signed up more customers.

The Chennai-born, Nasdaq-listed company on Tuesday posted a loss of 4 US cents per share in the third quarter ended September 30. Revenue rose 46% to $96.6 million.

The Street was expecting Freshworks to post a loss of 10 cents a share on revenue of $90.8 million, according to analyst estimates compiled by financial markets data provider Refinitive.

Freshworks’ strong Q3 performance comes ahead of what company cofounder and CEO Girish Mathrubootham said was a “Happy Diwali” for employees, with some of them being able to sell up to 20% of their shares in the company starting Thursday.

“Except for the management team or the affiliated parties like board members, everybody else is unlocked to 20% of their vested holdings,” Mathrubootham told ET. “But not everything is going to probably come to the market, because a lot of our investors are going to hold.”

Shares of the company that listed on the Nasdaq in September were around 15% lower at $42.50 in early US trading on Wednesday.

The company also raised its revenue forecast for the fourth quarter and the full year. It now expects the revenue to be in the range of $99-101 million in Q4 and $364.5-366.5 million in 2021.

“We beat our earnings number (and) we beat our revenue number,” Mathrubootham said, adding that the company thought its net dollar retention – the amount of revenue recorded from its existing clients from the previous year – would come down far below 118%. “But there was strong expansion across our existing customers so we still had 117% net dollar retention. Overall, I think we’re pretty happy with the results of Q3.”

The company said it has seen the number of customers contributing more than $5,000 in annual recurring revenue (ARR) was 14,079, an increase of 31% year-on-year. The customers accounting for more than $50,000 in ARR grew by 73% to 1,263.

“We are operating in three large markets, so we have a ton of opportunities there. Our foray into the sales and marketing automation space (with Freshsales) is still early days, and we all know how massive a market CRM is. Our focus is going to be on keeping our heads down, executing and winning in these three really large markets,” Mathrubootham added.

It onboarded Fortune 500 companies like Philips and Toyota Connected India who are using Freshservice to enable IT service management. Fast-growing tech companies like ForgeRock, Lucidworks, and Smashburger, a restaurant chain headquartered in Denver, have also implemented Freshservice to connect their global employees with IT support.

ET reported on Tuesday that Freshworks had overtaken long-time rival Zendesk in terms of market capitalisation. The company’s market cap has crept up to $14 billion, while that of rival Zendesk is closer to $12.5 billion, after investors punished the latter company’s stock after it announced the acquisition of the makers of SurveyMonkey for about $4 billion.

“They’re (Zendesk) a much bigger company in terms of revenues, so we still have a long way to go there. But we are still competing and winning against them in the market, and maybe someday we’ll beat them in revenue,” Mathrubootham said.

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