Freshworks ends fiscal year on 34% revenue growth

Mathrubootham and Woodside

A strong set of numbers from Freshworks yesterday as the firm reported a 26% year-on-year growth in Q4 revenue at $133.2 million, with an operating loss of $60.6 million. Full year revenue was up 34% year-on-year at $498.0 million, while the operating loss was $233.4 million. 

Other stats of note from the post-earnings analyst call: 

• The firm added1,800 customers in Q4, exiting with more than 63,400 in total.
• 17,722 customers deliver at least $5,000 in annual revenue, up 20% from a year earlier.
• New customers include the San Francisco 49ers, Finchoice, Mahindra, Supara, St. Marche, and Yulu Bikes.

Despite the current macro-economic climate, there is still growth on offer, said CEO Girish Mathrubootham:

Our approach during this recent period of macro-economic uncertainty, was to focus on driving our growth through 4 key strategies. We believe these 4 business drivers will continue to move us forward in 2023.

First is our continued focus on product innovation. In 2022, we expanded our unified CRM platform to include Freshchat. We launched this service for business teams to extend first service beyond IT. And we made our bots smarter across our CX, IT and broader CRM products to help businesses engage their customers faster.

Second, we saw results from our focus on larger customers, which is driving most of our growth. Today, nearly 60% of our business comes from mid-market and larger companies, with many of our Q4 deals starting with Freshservice.

The third business driver is expansion. Despite the challenging macro economy, customers expanded through agent additions, cross-sells and upgrades into larger deployments. In Q4, our net dollar retention was 110% on a constant currency basis.

And finally, our focus on operating efficiency. We generated positive cash flow in Q4 and improved our non-GAAP operating margin. We plan to build on this momentum and improve our efficiency in the years ahead.

Going up

There’s also been an increased focus on larger customers, added Chief Operating Officer Dennis Woodside: 

While our business was historically more in SMB, our revenue base has shifted over the years towards more mid-market and enterprise customers. Today, nearly 60% of our business is coming from mid-market companies, those with 251 to 5,000 employees, and enterprise customers with more than 5,000 employees.

That's because our cost-effective, yet powerful, products are delivering real value fast. They can scale to serve thousands of agents and millions of customer and employee interactions. These benefits resonate with companies of all sizes, especially in the current economy. The days of selecting a vendor only based on market share or brand name awareness are over. Customers want rapid impact and lasting value at a reasonable cost and Freshworks delivers.

While legacy incumbents are focused on the 2,000 largest companies in the world, Freshworks has the opportunity to serve hundreds of thousands of others who are dissatisfied or underserved by bloated and expensive software. We provide mid-sized organizations like Databricks, TaylorMade and Georgetown University with a better choice, powerful yet cost-effective solutions.

One operational change that’s occurred relates to the field sales teams, he went on: 

One of the things we did was we shifted our field team to focus on accounts with employees from 500 to 5,000 employees as the ideal customer profile. In the past, the field team would focus from 250 to 500. We can serve those 250 to 500 employee companies very well and more efficiently through our operations through inbound. Most of them are coming to us anyway through a response to a marketing message or coming to our website and signing up for a trial. So that was one pretty meaningful change.

Another change, we've created a set of product specialists to focus on Freshchat and Freshsales in particular. Both of those products are fairly complex. The competitive set is complex. So we feel the specialization on the sales side is really important. And we think that, that will result in continued improvement in win rate for those products.

My take

Next stop - operating profit by this time next year?