Freshworks reports strong revenue growth as more 'elephants' join the 'deer and rabbits' customers

A strong Q4 to end the year saw Freshworks pass an important milestone, reporting a 44% year-on-year revenue boost to deliver its first $100 million plus quarter.

The firm turned in revenue of $105.5 million for Q4 with a net loss of $74 million. Full year revenue was up 49% year-on-year to hit $317.0 million with a net loss of $191 million.

Other stats of note:

• 14,814 customers now contribute more than $5000 in Annual Recurring Revenue (ARR), up 28% year-on-year and now 85% of total ARR.
• Customers contributing $50,000 or more in ARR now total 1,416 and account for 41% of overall ARR, up 61% year-on-year.
• 21% of customers are us using more than one Freshworks product, with that percentage rising to 35% among the $5000+ users.
• New signings during Q4 included The British Museum, Databricks, Humanscale, Jollyroom, KaDeWe, Nation Safe Drivers, StyleSeat and Wheel Pros.

CEO Girish Mathrubootham noted that the larger customer demographic is showing the largest growth rate, despite the enterprise market not being the predominant go-to-market strategy to date:

I like to say we hunt for deer and rabbits, we don't hunt for elephants. So we don't have a traditional enterprise sales motion in that sense. While we focus on mid-market, we tend to see a lot of larger companies actually come and pull us into the enterprise. So that's happening…both for Freshservice and Freshdesk, with customer engagement and employee engagement starting to become an area of focus for digital transformation.

Users

He picked out a number of successful use cases to illustrate ongoing momentum, including 7-Eleven, an example of a multi-product user:

Their customer support team had to deal with a wide variety of incoming requests from multiple channels. By switching to Freshdesk support desk and contact center products, 7-Eleven support agents, saw significant productivity benefits from a modern tool, and managers were able to improve key support metrics with better insights. We are encouraged to learn that 7-Eleven team is planning to expand their Freshworks product usage even further. 

Other customer exemplars included The Southeast Alaska Regional Health Consortium, a non-profit group, serving the health interest of the native people of Southeast Alaska, which is using Freshservice and Freshdesk messaging to manage its IT help-desk in rural locations across thousands of miles and onboard new users more easily and efficiently.

Q4 also saw the introduction of new IT ops management capabilities within Freshservice. Mathrubootham pointed to an early use case here:

One of our customers, PowerSchool, is a leading provider of K-through-12 education technology in North America, serving over a 1,000 schools and supporting millions of students. They are using our new ITSM capabilities in Freshservice to increase their deployment frequency for the 40+ products that they support, and have reduced the rate of IT issues by over five times. This allows them to minimize downtime and enable children to keep learning.

IT opp 

ITSM is seen as a sweet spot for expansion, Mathrubootham added, citing it as a $34 billion market opportunity:

Businesses are rapidly moving their technology applications to their cloud. We frequently hear teams complaining about alarm fatigue, the overwhelming number of tools they have to use, and the manual activities leading to delays in identifying and fixing issues. Based on validation from our early customers, we plan to increase our efforts in offering an integrated IT operations management solution that enables IT and engineering teams to anticipate service disruption, prevent outages and minimize customer impact. 

He added:

In the IT space, what we're seeing are two trends. One is, all employees are remote. Every business is looking at how do they go hybrid, even if they open offices. They have to be able to support employees working from remote locations and they also have to do more for that, like help enable their IP and DevOps teams to have cloud-first solutions.

So that is where, if you look at the Freshservice product, our investments are going to be around - how do we enable IT teams to offer support through Slack and Teams? We have all the capability already and the new capability that we're adding is, how do we get into Enterprise Service Management market as well as ITOM, where we're able to help reduce those employee requests altogether by going more pro-active on helping engineers and DevOps teams to understand what's happening, and reduce those allowances in the first place? 

In terms of the wider market, Q4 also saw the settlement of trade secret misappropriation litigation filed by rival Zoho, regarding a former Freshworks employee wrongfully and without direction accessing and using Zoho confidential information. Freshworks agreed to remediate any harm done and Zoho has dismissed its lawsuit.

As far as the rest of the competitive landscape is concerned, Mathrubootham says it remains pretty stable:

In the CX market, I think we see Zendesk and Salesforce service Cloud predominantly, and we continue to see them. One of the trends that we're seeing is smaller start-ups who are offering companies the ability to do conversation and support, like on channels like WhatsApp or Facebook, and that's one of the areas where we are investing in.

On the ITSM side, it feels really [like] our strongest opportunity right now, as we are seeing that we are a credible alternative to ServiceNow. We continue to see ServiceNow and their focus is really on the large enterprise. We're squarely focused on being that mid-market alternative. 

My take

Turbulence in the wider tech market and the (very grizzly) bearish stance taken by Wall Street towards tech stocks hasn’t helped Freshworks any more than a host of other firms of late. But the underlying direction of travel here remains strong with the focus on the mid-market ITSM/ITOM space looking particularly healthy.