Freshworks turns in strong revenue numbers in first post-IPO earnings release

In its first earnings release since September’s successful IPO, Freshworks turned in a 46% year-on-year rise in revenue to $96.6 million, with a consolidated net loss of $107.4 million, compared to a profit of $13.87 million for the same period last year.  

The higher loss reflects a 305% rise in expenses to $214.63 million, including upticks in research and development ($57.08 million), sales and marketing ($96.78 million) and general and administrative ($60.76 million).

Other stats of note from the earnings presentation:

• Over 14,000 paying customers who are on a more than $5,000 in ARR.
• More than 50 new channel partners added globally as well as further extension of ISV partnerships.
• The firm added two new board members - Zach Nelson, former CEO NetSuite, and Jennifer Taylor, CPO of Cloudflare.
• New customers in the quarter included Double Diamond Resorts, ForgeRock, Hunter College NY,  Lucidworks, Phillips, Scotch and Soda, Smashburger and Toyota Connected India.

CEO Girish Mathrubootham highlighted a number of key wins across the quarter:

We welcomed Fortune 500 companies like Philips and Toyota Connected India, who are using Freshservice to enable IT Service Management (ITSM). Fast growing tech companies like ForgeRock, Lucidworks and Smashburger, a restaurant chain headquartered in Denver, implemented Freshservice to connect their global employees with IT support. Scotch and Soda, a global fashion retailer, is also using Freshservice to enable IT functions for more than its 1,500 team members.

Today, as every business is looking to engage with customers online, our Freshdesk product continues to see greater adoption. For example, the world's largest international beauty retailer, Watsons, implemented Freshdesk to help support their online buyers, while Hunter College in New York relies on Freshdesk to help current and prospective students during their admissions and registration process.

Enterprise ambition 

In terms of go-to-market strategy, Mathrubootham said:

We have our product-led inbound growth motion, where the majority of the customers there are SMB customers, which is companies of less than 250 employees. But having said that, we also get teams from larger enterprises come inbound and they are handed off to our mid-market sales teams.

So we have our mid-market field teams in the region in US, Europe predominantly. They go after larger accounts. So if you look at the split, it’s still is around I would say 60/40 mid-market to SMB approximately, We are seeing if you look at Q3 specifically, customers who paid us more than 50K ARR, that number grew at 73% year-over-year.

He added:

Predominantly we land larger customers with either Freshdesk or Freshservice. So if you look at most of the large customers for Freshworks, they are all Freshdesk omni-channel customers. We usually think of them as scaled-B2C companies, where the agent volumes are high and automation needs are high and the support through digital channels also is increasing because of digital transformation. Freshservice [is] more mid-market, [but] we also see that segment play into typically larger customers. So we land most of the mid-market and above deals with either Freshdesk omni-channel or with Freshservice. Now, in terms of expansion, the primary expansion motion for both these products is addition of agents. These two products, it is worth understanding that they are complementary products and there's no natural cross-sell motion between these two.

What changes things moving forward should be the firm’s new Freshsales product:

We are able to actually sell Freshsales into an existing Freshdesk customer, where they are able to buy Freshdesk and Freshsales, or sometimes Freshsales and Freshmarket along with Freshdesk. So that is a cross-sell motion that we think will continue to happen as our Freshsales product matures and gets more adoption.

As to that future, Mathrubootham stated:

We are always looking at ways to improve our pipeline and so we have a mix of programs across our different go-to-market motions. Our marketing teams and sales teams are investing in the events together, increasing word of mouth. We are bringing up some new campaigns to take [on] omni-channel customer service or even IT engagement and employee engagement in a post-pandemic world. So we have multiple targets for new expansion…there is a ton of activity that we are doing to see how we can improve pipeline across both inbound and mid-market.

He added that there are clear functional target areas of opportunity ahead:

If you look at ITSM, in the Freshservice market, clearly you can see modern employee engagement [opportunities], especially when employees are working from home. How do you enable them to get whatever they want from the business and keep the IT workflows running? So that's a trend.

But the biggest opportunity and trend that we see is the breaking down of the silos between sales and marketing and support with a 360 degree product vision. You can see large enterprises buying a customer data platform and trying to integrate their sales cloud and their marketing cloud and their service cloud to build the customer 360 profile.

So we think that customer 360 will become a product category on its own and more and more businesses will want to understand their customers better and want a product experience for that. That is what we see as a big opportunity that allows us to sell more to customers. Today the buying centers are still buying for sales or marketing or support, but we'll be able to offer them a more complete solution. And the good news is we are architected as plug-and-play, where customers can start where they want, but then add on more. So I think that is where the industry is going.

My take

It’s a whole new world out there as a public company as Freshworks found yesterday when the share price took a dip on the earnings release. It’s an all-too-common reaction from a greedy Wall Street that just wants more and more and more from cloud firms. The revenue growth numbers look strong, but Freshworks is a company with a solid foundation that’s transforming to meet new ambitions and that requires investment. We’ve noted the influx of experienced enterprise talent that preceded September’s IPO. Keeping up the effort to evolve the firm to its next level of potential will require it to keep doing the necessary spadework, but from here on in, it’s going to be doing that to a backdrop of Wall Street commentary and, at times, skittishness. Brave new world and all that.