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Freshworks Q1 sees revenue up, losses down and more large customers on the books

Stuart Lauchlan Profile picture for user slauchlan May 3, 2023
Summary:
'Land and expand' is working well, according to President Dennis Woodside.

Freshworks execs
Mathrubootham and Woodside

A good start to its latest fiscal year for Freshworks, as the firm turned in Q1 2023 revenue of $138 million, up 20% year-on-year, while a net loss of $43.5 million was down 13% against the comparable period last year. 

New customer wins for the quarter included Fila, Los Angeles Dodgers, Smyths Toys, Sonata Software, and The City of Escondido. Meanwhile the number of customers contributing more than $5,000 in ARR (Annual Recurring Revenue)  was 18,441, an increase of 18% year-over-year. 

CEO Girish Mathrubootham used the post-results analyst call to run through some customer use cases across the Freshworks portfolio, beginning with FreshService: 

One notable customer, Fila, a global sportswear manufacturer chose Freshservice for its ease of use and configuration. In Q1, we also added new capabilities for workflow automation and workload management in Freshservice. The workflow automated feature helps businesses digitize their workflows and automate repetitive tasks. The workload management features provide supervisors with full visibility of assigned work, assist in workload monitoring, and helps prevent employee burnout.

Freshservice has also expanded its services beyond IT with the launch of Freshservice for Business Teams, notable customers using Freshservice for Business Teams include Brunel University in the UK and the Commercial Bank of Dubai.

In the CX business, he pointed to a couple of customers reporting benefits from using Freshdesk: 

Tata Digital turned to Freshdesk as a cost-effective solution for the Super App, aiming to scale support for over a billion potential users in India. In just six months, Tata Digital achieved a 50% ticket deflection and a 50% increase in customer satisfaction. With Freshdesk, another customer Riverside Insights was able to improve agent productivity by tracking real time ticket trends, leading to an 80% reduction in login-related tickets and improved customer satisfaction.

Bigger

There are more examples coming of larger customer wins, added Dennis Woodside, Freshworks President and enterprise tech veteran. The number of companies spending more than $50,000 ARR grew by 30% year-on-year and now make up 45% of total revenue. Woodside cited S&P Global as a case in point: 

[It] needed a support team to respond to customer queries as quickly as the market changes. S&P mines billions of data points to offer independent ratings, benchmarks, and analytics. It then offers critical information to companies, governments and individuals to make investment decisions. S&P uses Freshdesk to automate route and assign tickets to agents, who can resolve issues fast for its 13,000 customers. S&P's ticket resolution is now four times faster than the industry benchmark and ticket assignments happen twice as fast as the industry average.

Freshworks ‘land and expand’ strategy is also paying off, with customers realizing value from one  product and then scaling up or expanding their footprint, he added: 

That's more and more common for us, where we're seeing customers that have been with us for a couple of years, they've had success with the product, and then they're adding a second product or third product. It's still relatively early for us - most of our expansion has historically come from seed addition of the same product, but we're leaning more and more into the true cross sell motion. 

He pointed to a couple of use case examples: 

Travel Counsellors is a multi-award-winning travel agency with over 2000 individual travel companies, known as TCs. TCs bring their own book of business and contracts and collaborate dynamically with each other. This required a faster, more efficient system to provide dependable service experience for TCs.

Since 2017, Freshdesk has helped streamline, automate and prioritize support requests to provide timely help, enabling TCs to provide a great service experience. Average first contact resolution is now over 75% and average CSAT is now more than 90%. More recently, they added Freshsales for their TCs to manage new leads recruit new counsellors and convert corporate travel opportunities.

The publishing industry is always facing pressure to be more efficient with fewer resources. Global online and print publisher Forbes was held back by a home-grown employee support tool making their IT service less efficient. While looking for alternative solutions, they discovered Freshservice to streamline all employee service request, which has helped the team save costs and cut their average resolution time in half in two years. Since then, Forbes [has] added Freshdesk omni-channel customer support software.

My take

 

A good quarter, particularly given the ongoing uncertainties in the macro-economy. 

Inevitably there was a nod towards generative AI developments coming up later in the summer as Mathrubotham said: 

Where we are excited and actually investing right now, which is a priority for us, like in this quarter and the coming quarters, is how do we actually use generative AI to think about improving our ability to help businesses deliver better customer experiences and better employee experience?  So we are thinking along the lines of, how can generative AI help customers self-serve themselves? How can it help customer service agents solve customer problems or leaders actually get better insight? And we're doing this across not just our CX products, but also across our IT and sales and marketing products.

Despite questions around the impact of automation in the workplace, there will always be a need for human beings in support functions, he added: 

This is a journey that is not new, but definitely the question is being asked louder after ChatGPT. But in 2016, we embarked on this journey where we foresaw a future where the industry is moving more towards bots and automation. I think the reality of, let's say, our biggest market, which is customer service and support…the reality is level one support always will have a lot of deflection and automation, and the higher order support will actually always require some amount of human touch personalization and subject matter expertise.

More to come in June. 

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