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Freshworks delivers strong Q2 with net loss cut in half

Stuart Lauchlan Profile picture for user slauchlan August 2, 2023
Summary:
Changes in go-to-market strategy are paying off, says COO Dennis Woodside.

Freshworks
Dennis Woodside

Freshworks had a strong Q2 with revenue of $145.08 million, up 19%, year-on-year, and a net loss of $35.66 million, cut by 48.9% vs last year's comparable quarter.

Chief Operating Officer Dennis Woodside attributed “strategic go-to-market” decisions earlier in the year for the healthy numbers: 

We are seeing that our actions that set us on a path to win bigger deals, expand within existing accounts, and improve our operating efficiency are working to drive profitable growth for Freshworks. In January, we shifted our field teams to focus on landing bigger customers and this quarter, we began to see the results. In Q2 Freshworks customers paying us over $50,000 in ARR grew 33% year-over-year, up from the 30% growth we saw in Q1. This customer cohort now represents 46% of our ARR as larger customers are fueling the growth of our business.

Also in January, we solidified teams dedicated to ensuring our customers succeed and grow with us. We are seeing results from that change in Q2. Of our net customer adds over $50,000 in ARR, the majority is coming from expansion. Our net expansion for our mid-market and enterprise accounts was 12%, which is well above the average rate for the company.


Freshworks ended the quarter witih 65,600 customers. Woodside commented: 

Absolutely, we are starting to realize the benefits, a lot of the changes that we made back in January, and that has enabled us to create an even stronger and healthier base of these larger customers to grow from. Our product has advanced at a very high rate over the last couple of years. If you look at the ITSM products specifically. We have ITSM, we have ITOM, we have ESM now. All those are resonating in the market and our sellers are doing quite well. So we're getting more of that and we've just put more wood behind the not huge deals, but slightly larger deals and you're seeing that in the numbers for sure.

Users

He cited a number of use cases to back up his points: 


Clopay is North America's leading garage door manufacturer and came to Freshworks to improve customer engagement. The increasing multi-channel interactions with garage door dealers through calls, mobile chats, website forms, and physical walk-ins necessitated a unified platform for a better agent and customer experience. Clopay chose Freshdesk, Freshchat and Freshcolor to achieve this and continues to see significant customer service benefits.

Trainline [is] an international digital rail and coach technology platform serving train riders in 45 countries. Demand from US travellers doubled the downloads of the Trainline app in just 1 year, and they relied on Freshdesk and Freshchat for their customer service needs. In Q2, Trainline's Partner Solutions team expanded their usage and adopted Freshservice to manage their partners' experience, citing improved time to value as the main deciding factor.

Woodside also pointed to an unnamed US steel company as an example of a customer expanding its use of Freshworks offerings: 

After acquiring 12 companies in 5 years, this manufacturer selected Freshservice for one business unit and has consistently replaced legacy vendors one after the next, with another Freshservice instance year-after-year. We've grown from 250 to 600 agents, providing them excellent time to value as they centralize IT workflows and govern multiple business units more efficiently. 

He added:

Remember the TAM [total addressable market] in the markets that we're playing in are massive and relatively fragmented. Yes, there are large competitors, but there's a lot of room. There's still a lot of legacy players that are not innovating as fast as we are, and our product is improving every month. So we have a lot of runway.

There’s a long way to go, he concluded: 

I think there's a lot of upside. We're seeing more of that in more big deals than we ever had. We're closing more big deals every quarter than we ever had in prior quarters. We have goals around a number of, as an example, 30k deals that we need to close in a quarter. Last quarter, we handily beat that goal, and those numbers go up every quarter. So I think that the long-term mark, we're still pretty early in that and how the go-to-market changes are going to play out in the business, and we're feeling really good about how that's going to take us.

My take

A strong set of numbers that indicate that the modifications to the go-to-market strategy back in January are paying dividends. 

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