Status: Strategic Transition / Value Opportunity
Current Price: ~$11.00 | Target Price: $18.69 – $19.23
Freshworks continues to demonstrate high operational efficiency, consistently meeting the “Rule of 40” (combined growth and margin). While top-line revenue growth has moderated to 15%, the company is successfully pivoting toward larger enterprise clients and aggressive AI integration to offset broader macroeconomic headwinds.
Revenue Performance: Reported $215.1 million, a 15% YoY increase, marginally exceeding market expectations.
Profitability: Significant earnings beat with $0.16 EPS (Non-GAAP), supported by a robust 21% operating margin.
Cash Position: Generated $57.2 million in free cash flow. The company remains well-capitalized to fund its current expansion strategy.
Retention: Net Dollar Retention (NDR) sat at 105%. While down from previous years, this remains healthy for the current SMB spending environment.
Freshworks currently trades at a discount compared to its historical averages and peer group (Salesforce, Zendesk).
The Opportunity: The stock is currently perceived as significantly undervalued (roughly 50% below intrinsic value). If management successfully re-accelerates growth through its “Up-Market” strategy, we expect a meaningful multi-expansion in 2026.
To address concerns regarding the slowdown from 19% to 15% growth, CEO Dennis Woodside has implemented three key initiatives:
Enterprise Focus: The company is moving away from the “churn-heavy” micro-SMB market. Customers generating >$50k in ARR grew by 20%, and this will be the primary metric for success moving forward.
Freddy AI Monetization: AI is no longer a “feature” but a revenue driver. Management expects AI-specific revenue to scale to a $100 million standalone stream within three years.
Cross-Departmental Expansion: By unbundling “Freshservice” for HR and Finance teams, FRSH is increasing its footprint within existing organizations without competing directly against established IT incumbents.
The market remains cautious regarding the pace of the SMB recovery. However, the operational discipline shown in the Q3 margins provides a “floor” for the valuation. We are closely watching the February 10, 2026 earnings call for updated FY2026 guidance and commentary on AI adoption rates.
