Freshworks Beats Expectations As Revenue Surges Past $100 Mn Mark In Q4 2021

SaaS giant Freshworks has surpassed $100 Mn in quarterly revenue and achieved 44% year-over-year growth in the year-ending fourth quarter of 2021. As announced in its earnings report for 2021, the company’s total revenue for the year was $371 Mn, representing growth of 49% compared to 2020, but loss from operations shot up to $204.8 Mn, compared to $56.1 Mn in 2020.

Revenue for the September-December 2021 quarter was $105.5 Mn, with a quarterly loss of $56.4 Mn, compared to $3.4 Mn in the same quarter in 2020. The net loss for the quarter was $74 Mn, compared to $119 Mn in Q4 2020.

Freshworks Q4 Revenue & Earnings Highlights

The quarterly revenue beat analyst expectations of $99 Mn-$101 Mn, which is likely to make Nasdaq-listed Freshworks a little more attractive for investors.  Since November 2021, Freshworks has crashed from $50 per share to $22.46 per share today. Will the better-than-expected quarterly results prove to be a turning point for the stock?

Net dollar retention rate, which is a measure of revenue growth and customer churn for Freshworks, was 114%, compared to 117% in the third quarter of 2021 and 111% in the fourth quarter of 2020. The NDR is calculated on the revenue at the start of the quarter. The typical formula is a percentage calculation based on the revenue at the start with any customers upgrading their revenue contribution added in and any downgrades in revenue contribution and churn customers subtracted.

Among the key highlights for the quarter, the company pointed out that the number of its customers that are contributing more than $5,000 in ARR was 14,814, an increase of 28% year-over-year. Further, net cash provided by operating activities was $4.8 Mn, compared to $13.5 Mn in Q4 2020. It also reported lower free cash flow of $2.8 Mn, compared to $11.9 Mn in 2020.

For the full year, net cash provided by operating activities was $11.5 Mn, compared to $32.5 Mn in 2020, while free cash flow was $2.3 Mn, compared to $23.5 Mn in 2020. Cash, cash equivalents, and marketable securities were $1.3 Bn as of December 31, 2021.

The company has projected revenue between $107 Mn and $109 Mn for the current quarter, with a projected loss of $10.5 Mn – $12.5 Mn. For the full year, the revenue projected is $486.5 Mn – $495 Mn, which would represent 33% growth from 2021. It also expects loss from operations to fall under the $56.5 Mn mark.

Freshworks Stock Reeling From Crash

Last year, the company witnessed a stellar Nasdaq stock market debut in the US, and its early investors made a fortune. Post the bumper listing, the Salesforce rival said that over 500 shareholding employees in India became ‘crorepatis’ following the listing. Starting from February 14, 2022, lock-up agreements between the company’s directors, officers, and holders of Freshworks’ common stock with the underwriters of Freshworks’ IPO will expire. These shares will become eligible for sale in the public market, the company said.

It remains to be seen how this might impact the Freshworks’ stock in the long-term. Since November, the stock price has plummeted due to a bearish phase among the US tech stock investors. It has affected not just Freshworks, but stocks of other tech companies as well and valuations have come crashing down. In addition to the recently-emerged threat of conflict between Russia and Ukraine and other countries, the stock market was already reeling from macroeconomic quakes such as rising interest rates, high inflation, and rising Treasury-bond yields. Further, the final quarter of the year, is always seen as a profit-booking quarter.

The company’s share price is down roughly 7.5% in February alone. Freshworks’ market capitalisation on November 3, 2021 was over $14 Bn. That was when it announced its Q3 earnings, but now, three months later, the market cap is just under $6 Bn.