What Happened?

Shares of business software provider Freshworks (NASDAQ: FRSH) jumped 27.9% in the morning session after the company reported strong third-quarter earnings and provided an optimistic full-year EPS forecast, which blew past analysts' expectations. Revenue and EPS also outperformed Wall Street's estimates. Freshworks is doubling down on investments in top performing solutions such as its Employee Experience solutions which grew 40% year on year. On the side, it is also investing in new AI-driven capabilities such as Freddy Copilot and Freddy's self-service offerings. To achieve a healthy balance of growth and profitability, Freshworks announced a 13% workforce reduction, which will also help reallocate resources into its new growth projects. Overall, this was a good quarter.

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What The Market Is Telling Us

Freshworks’s shares are somewhat volatile and have had 10 moves greater than 5% over the last year. But moves this big are rare even for Freshworks and indicate this news significantly impacted the market’s perception of the business. 

The biggest move we wrote about over the last year was 6 months ago when the stock dropped 28.9% on the news that the company reported weak first-quarter results and provided full-year revenue guidance below expectations. The full year sales outlook was lowered to a range of $695.0 - $705.0m (vs. previous expectation of $703.5 - $711.5). Additionally, it reported smaller net additions due to increased small-to-medium-sized business churn. 

The company also announced a leadership change, with Founder and Chief Executive Officer Girish Mathrubootham transitioning to the role of Executive Chairman. Dennis Woodside was appointed Chief Executive Officer and President. Overall, this was a weaker quarter for the company, given the poor guidance.

Freshworks is down 23.9% since the beginning of the year, and at $16.79 per share, it is trading 31.4% below its 52-week high of $24.48 from December 2023. Investors who bought $1,000 worth of Freshworks’s shares at the IPO in September 2021 would now be looking at an investment worth $353.20.

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