Freshworks (FRSH) has set a 2026 total revenue target of $1 billion and is counting on expansion in its IT service management (ITSM) business and a continued move upmarket to help get it there.
Freshworks provides business software aimed primarily at small and mid-market organizations. The company operates in a total addressable market estimated to be worth $78 billion, according to Gartner. Two main products represent the bulk of Freshworks’ revenue: Freshdesk for customer support and Freshservice for ITSM.
Of the total Freshworks customer base of 65,600, more than 51,000 are SMBs (companies with 250 or fewer employees). In the current tight spending environment, these smaller businesses have been closely watching their costs. They’re buying fewer software seats and, in some cases, actually reducing the number of seats deployed.
Given the pullback in demand from SMB customers, Freshworks expects 2023 total revenue of $587 million to $595 million, representing growth of 18% to 19%, down sharply from 34% growth last year. For 2024, analysts are not forecasting much of a rebound, with the consensus revenue estimate of $704.9 million indicating growth of 19.2%.
However, Freshworks bulls see plenty of long-term potential, especially in the ITSM business, where the company competes against larger rivals ServiceNow (NOW) and Atlassian (TEAM) based on price and ease of use.
When Freshworks set its $1 billion revenue goal at the analyst day in early September, management said the ITSM business is projected to provide much of the horsepower needed to reach this target. The company is forecasting that ITSM in three years will represent 60% of total annual recurring revenue (ARR), up sharply from 44% today. Freshworks is gaining share in ITSM, as this part of its business is growing in the low 40% range compared to 12% growth for the market segment.
Freshworks has been expanding the IT-focused portion of its product portfolio. Last year, it added IT operations management (ITOM) to the mix. Last December, it debuted Freshservice for Business Teams, offering service management for non-IT use cases in HR, finance and legal. Freshworks now has 8,500 ITSM customers that spend over $5,000 annually. It plans to steadily expand this unit through a go-to-market combination of inside sales, field sales and partner sales.
The customer support portion of the business is larger. The Freshdesk product has total ARR of $300 million versus $250 million for Freshservice. There are 10,000 Freshdesk customers that spend over $5,000 a year. But customer support is a much more competitive market, with many well-established vendors. Freshworks is only growing at the market rate of 15%. By 2026, customer service ARR is expected to represent 35% of total ARR, down from 51% today.
Increased upmarket sales efforts will help Freshworks reach its revenue target in three years. Freshworks currently has more than 13,000 mid-market and enterprise customers (it added 759 just in the latest quarter) that represent nearly 60% of total ARR. It even serves 215 Global 2000 companies—including American Express and Bridgestone. Continuous enhancements to its product portfolio (including new AI capabilities) will attract larger accounts.
As of Q2, Freshworks had 2,186 customers with ARR above $50,000 (representing 46% of total ARR). The majority of these large accounts reached the $50,000+ threshold due to expansions across seats and products. For 2026, Freshworks expects to have more than 5,000 of these $50,000+ accounts. At the $100,000+ ARR level, there are 855 customers (up 37% year over year) that account for 30% of total ARR. As recently as 2020, Freshworks only had 321 of these $100,000+ customers.
Freshworks will report Q3 results on October 31. For the quarter, the company’s revenue outlook of $149 million to $151.5 million represents growth of 16% to 18%.
Freshworks shares are having a volatile year. After hitting a low of $12.22 in early May (down sharply from the September 2021 IPO price of $36), the stock rebounded 95% to reach a new 52-week high of $23.80 in early September before dipping back into the upper teens. With the stock recently trading around $17.70 a share, Freshworks’ enterprise value is 6.8 times the 2023 consensus revenue estimate of $591.2 million and 5.7x the 2024 consensus.
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