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Freshworks Q4 sees net losses nearly halved as 'land and expand' continues to pay off

Stuart Lauchlan Profile picture for user slauchlan February 7, 2024
Summary:
Freshworks closes off its year-on with revenues up and losses down.

Freshworks execs
Mathrubootham and Woodside

A strong end to its fiscal year for Freshworks with Q4 revenues up 20% year-on-year to $160 million, while net losses of $28 million were down from $55.4 million for the comparable year ago period. The firm also turned in a full year operating profit of $44.5 million on consolidated revenues of $596.4 million.

CEO Girish Mathrubootham cited three differentiators that he pitched as driving growth:

The first is the power of our Neo platform which underpins our product portfolio, giving us the ability to serve enterprise buyers and cross-sell into more departments with multiple products. Second is our AI innovations, which are already helping customers achieve concrete productivity improvements. And third is our talented product development team in India that drives our innovation velocity and brings products to customers faster. 

The company’s ‘land and expand’ strategy is also paying off, with the likes of Big Lots, S&P Global, Fila, Cineworld, Forbes, L.A. Dodgers, Nucor, Giant Eagle, and Johnsonville Sausage cited as examples. Mathrubootham focused in on UK retail customer Frasers Group: 

After they chose Freshdesk in 2022 to consolidate 16 customer support systems into one, the company saved over $1 million in software licensing costs. Then, in recent months, Frasers Group added our AI-powered bot and can now deflect more than a quarter of their customer interactions from human agents, saving more time and money for the company.

Expansion

President Dennis Woodside said that expansion opportunities with existing customers come in multiple forms: 

We have several paths to grow our business with existing customers. These include agent seat additions, product cross sales, addition upsells, and enhanced pricing. Our recent introductions of AI capabilities, including bot sessions and Copilot add-ons, offer additional opportunities across our 67,100 customers.

Woodside said that over a quarter of the Freshworks customer base (26%) now has more than one product from the firm:

One of these customers is Brunel University London, a college highly recognized for its research. They serve up to 18,000 students and more than 2,500 staff across the academic year. Already a Freshservice customer, they saw an opportunity to improve and provide a more consistent service experience to departments beyond IT. These include health and safety, campus service, the student center, and student welfare. By adding business agent licenses and workspaces, they reduced the average ticket resolution time from a previous backlog of several weeks to around four hours and achieve over 85% positive customer feedback.

Another example cited was Agiito, a mid-market travel management company in the UK. Woodside said: 

[They] first bought Freshdesk. This was to replace an on-premise customer support solution that couldn't deliver unified analytics and limited collaboration across teams. Later, they added Freshcaller and Freshchat to unify support channels. And more recently in Q4, they rolled out Freshsales to generate more qualified leads.

Moving forward, expect to see more investment in a partner ecosystem, Woodside said: 

We announced a couple weeks ago a partnership with AWS, where they're bringing us into new deals. We're working with them on deals. One of our largest deals with a large apparel maker this year was assisted by AWS. Our customers are able to retire AWS commitments in terms of credits that they've committed to spend over multiple years by buying our software. So, that makes the buying process much easier for them and for us. It speeds the time to sale. So, that's an example of a large partner that we think can help us accelerate growth over time.

My take

A solid year end for Freshworks, with go-to-market changes introduced by Woodside seeming to take traction. A $1 billion run-rate by 2026? Ambitious, but worth keeping an eye on. 

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