Freshworks Stock (FRSH): Is It a Good Buy After Earnings?
In September 2021, the California-based company Freshworks — which offers management services and IT management products — priced its initial public offering at $36 per share. However, the expected price range for the Freshworks IPO was slightly lower at $34.
After the IPO, the company had 281.4 million shares remaining, amounting to $10 billion in valuation. But things changed for the company at the beginning of November. Take a look at Freshworks stock and where it is worth a buy.
Effect of Freshworks Quarterly Earning Report on the Stock Price
Freshworks released its quarterly results in the first week of November 2021. Since the report’s surfacing, the company’s stock price fell.
According to Refinitiv, the company suffered a loss of $0.04 per share instead of the loss of $0.10 forecast by analysts. Meanwhile, the company earned a revenue of $96.6 million as opposed to the $90.8 million expected by analysts.
In its statement, Freshworks said that its revenue had grown nearly 46% during the quarter. Moreover, Freshworks saw an adjusted loss of $0.22 to $0.20 a share for the whole year, which was less than what the analysts forecasted — $0.23.
Moreover, the company projected its annual revenue to be $364.5 million to $366.5 million. Meanwhile, Refinitiv held a consensus that predicted the revenue to be $356.6 million.
Why Freshworks Stock Dropped 16%
Freshworks’ stock price fell 15.9% at 10 a.m. on November 3rd, even after the company reported its “earnings beat” the previous night. According to the forecasts made by analysts, the company was expected to make $90.8 million in sales.
Analysts also forecasted that the company would lose $0.10 a share in its third quarter. But instead of these forecasts, Freshworks lost $0.04 per share and logged $96.6 million in sales.
Loss in Share Price
Despite this, the company still experienced a loss since its share price fell according to generally accepted accounting principles. In its third quarter, the company had a considerable loss. The quarter’s GAAP losses were $24.72 a share. The loss came even though the stock’s sales had been growing impressively.
However, the good news is that Freshworks is on the path towards growth and may outgrow the losses. After all, the reports showed that the company made sizable sales. Also, the number of Freshworks customers that pay over $5,000 a year has increased by 31% in the third quarter.
As for the future, the management predicts the revenue generation to be up to $100 million in the fourth quarter. Furthermore, they expect the adjusted losses to be about $0.05 per share to $0.07 a share.
For the whole year, Freshworks is looking at an adjusted loss of $0.22 to $0.20 a share and around $365 million in sales. However, as the results of the third quarter have indicated, doing so will not help much in terms of avoiding losses.
Good To Know
According to the internal data from Freshworks and the company’s inherent analyses, it has a potential opportunity in the market of up to $77 billion. Since the IT sector is bound to expand in the coming years, Freshworks may likely make a stable place for itself in the industry.
Is Freshworks Stock a Good Investment?
A lot has changed since the Freshworks IPO was introduced to the market. Now that people have seen the rise and fall of the company’s share, investors are intrigued to know if the stock holds any potential for the future. Is it a value stock?
Before you invest in the Freshworks stock, here are a few things you must know:
Minimal Voting Power
Freshworks is offering up to 28.5 million shares. Meanwhile, there are 2.9 million more shares that cover over-allotments. So, the company’s whole valuation sums up to $1.07 billion.
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However, this constitutes the Class A shares that are an addition to the existing 252.9 million Class B shares. Class A shares have only one vote, whereas Class B shares have ten votes.
As a new shareholder, you will get around 1% of the voting power.
Designed in India
Although Freshworks is based in San Mateo, most of its employees work and reside in India. Of the company’s total workforce, 88% work from different Indian locations. These employees include:
- Product designers
- Customer support staff
- General administrators
When the pandemic hit, the company had to close its offices. However, there were no reports of any disruption in the company’s relationship with its employees. Freshworks reported that its work had not stopped due to the pandemic.
The company also played its role in combating the effects of the COVID-19 pandemic in India.
For half of 2021, the company earned 58% of its revenue from its non-North American customers. In 2020, the company’s revenue for the first six months was $110.5 million while it lost $57.1 million.
Meanwhile, the earnings increased to $168.9 million in the first half of 2021, while the losses went down to $9.8 million. Investors must keep in mind that many of the company’s customers come from outside North America.
Therefore, an external influence may also determine the future price of the company’s stock.
Is It a Good Buy?
Freshworks management predicts the company to have sales of up to $101 million in the fourth quarter of 2021. The expected growth coupled with the high contract renewal rates and encouraging metrics implies that the company has a strong year-end coming up.
As an investor, you have to balance your optimism for the company’s gains against the chances of losses since Freshworks is investing in new initiatives. Since insiders are making more shares available for trading, you can also expect volatility in stock price.
With these things to consider, Freshworks is still a young software business, so you should invest wisely.
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- MarketWatch. 2021. "Freshworks IPO: 5 Things To Know About the Customer Software-as-A-service Provider."
- CNBC. 2021. "Freshworks (FRSH) Earnings Q3 2021."
- The Motley Fool. 2021. "Why Freshworks Stock Dropped 18% This Week."