Freshworks Inc (NASDAQ: FRSH) continues to quietly deliver strong fundamentals even as its stock price experiences volatility.
Solid Q1 Performance
Freshworks reported another strong quarter, particularly in its Employee Experience (EX) segment, which surpassed $420 million in Annual Recurring Revenue (ARR), growing 33% year-over-year on a constant currency basis. Total revenue for Q1 rose 22% YoY to $194 million, while adjusted free cash flow jumped 43% to $55.4 million—resulting in a robust 28% free cash flow margin.
Key drivers include continued expansion in the mid-market segment (5,000–20,000 employees), where Freshworks is building a niche against more complex and costly incumbents. The number of customers grew 8% to over 70,000, while larger customers (> $50K ARR) grew at twice the rate of smaller customers, 22% versus 11%.
AI Adoption and Product Differentiation
Artificial intelligence is emerging as a significant tailwind. Freshworks’ AI assistant, Freddy Copilot, was included in three of the top 10 new deals this quarter. Notably, nearly 50% of new large deals over $30,000 ARR had Copilot bundled in, demonstrating that AI is not just a buzzword for Freshworks, but a feature driving meaningful customer adoption.
Use cases like Sophos choosing Freshworks over legacy players for simplicity, lower TCO, and AWS Marketplace integration, reinforce the company’s edge in delivering modern, accessible ITSM solutions.
Strategic Shift: Upmarket & Partner-Led
Freshworks has also restructured its reseller model to encourage partner services around its platform—effectively making FRSH a product stack that others can build upon. This shift, coupled with focused go-to-market efforts, is enabling the company to expand its footprint in the underpenetrated mid-market space.
Valuation Disconnect
Despite its positive trajectory—stable Net Dollar Retention at 105%, growing operating and free cash flow, and a narrowing GAAP loss—Freshworks’ stock has seen some pullbacks. This appears more reflective of macro sentiment than company performance.
Valuation remains reasonable for a company with this growth profile and improving operational leverage. The gap between Freshworks’ growth metrics and its market valuation continues to widen, presenting a potential opportunity for long-term investors.
