Business software provider Freshworks (NASDAQ:FRSH) reported revenue ahead of Wall Street’s expectations in Q4 CY2025, with sales up 14.5% year on year to $222.7 million. Guidance for next quarter’s revenue was better than expected at $223.5 million at the midpoint, 1.3% above analysts’ estimates. Its non-GAAP profit of $0.14 per share was 23.8% above analysts’ consensus estimates.
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Freshworks (FRSH) Q4 CY2025 Highlights:
- Revenue: $222.7 million vs analyst estimates of $218.7 million (14.5% year-on-year growth, 1.8% beat)
- Adjusted EPS: $0.14 vs analyst estimates of $0.11 (23.8% beat)
- Adjusted Operating Income: $41.62 million vs analyst estimates of $32.15 million (18.7% margin, 29.4% beat)
- Revenue Guidance for Q1 CY2026 is $223.5 million at the midpoint, above analyst estimates of $220.7 million
- Adjusted EPS guidance for the upcoming financial year 2026 is $0.56 at the midpoint, missing analyst estimates by 19%
- Operating Margin: 17.8%, up from -12.2% in the same quarter last year
- Customers: 24,762 customers paying more than $5,000 annually
- Net Revenue Retention Rate: 104%, down from 105% in the previous quarter
- Annual Recurring Revenue: $917 million (17.5% year-on-year growth, beat)
- Billings: $260.1 million at quarter end, up 16.9% year on year
- Market Capitalization: $2.46 billion
StockStory’s Take
Freshworks delivered fourth-quarter results that surpassed Wall Street’s revenue and profitability expectations, yet the market responded negatively. Management attributed performance to continued strength in the employee experience (EX) business, expansion into larger enterprise deals, and growing adoption of its AI-powered solutions. CEO Dennis Woodside emphasized, “We are witnessing a generational shift where midsize and larger enterprise organizations expect sophisticated software that can handle their complex needs and get fast time to value.” The customer experience (CX) segment stabilized, driven by product simplification and steady AI feature uptake, while broad-based upmarket momentum played a significant role in the company’s ability to consistently win larger deals.
Looking ahead, Freshworks’ guidance reflects confidence in sustained growth within its EX platform and the monetization of AI products, alongside measured expectations for its CX business. Management highlighted the launch of new AI agent capabilities and the integration of recent acquisitions as key contributors to future expansion. CFO Tyler Sloat noted that accelerating growth in the EX segment, increased pipeline of $100,000-plus deals, and the transition of Device42 to the cloud underpin the outlook. However, management remains selective in projecting significant upside from AI, and intends to maintain disciplined investment as it targets durable profitability.
Key Insights from Management’s Remarks
Management attributed the quarter’s outperformance to robust enterprise deal activity, accelerated AI adoption, and upmarket expansion, with EX driving the majority of growth momentum.
- Enterprise wins drive growth: Freshworks saw notable success in displacing legacy platforms, including a global semiconductor company switching from ServiceNow to Freshservice, citing both cost savings and improved resolution times. This highlights the company’s traction among large organizations seeking modern, unified service operations platforms.
- AI monetization gains traction: Over 8,000 customers now pay for Freddie AI, which delivered $25 million in annual recurring revenue (ARR) and deflected more than 50% of tickets for both EX and CX customers. Management pointed out that AI capabilities are increasingly a core driver of both new sales and expansion within the base.
- Device42 and platform integration: Device42, acquired to bolster IT asset management, saw a 30% attach rate to top EX deals and over $40 million in ARR. Management is preparing to launch a native cloud version of Device42, aiming to further penetrate cloud-first enterprises.
- Upmarket momentum: The number of customers spending over $50,000 in ARR grew 23% year over year, and large deals contributed a greater share of total revenue. Management emphasized that mid-market and large enterprise customers remain the primary source of expansion, particularly in EX.
- Customer experience (CX) stability: The CX business stabilized as Freshworks unified its product offerings and migrated customers to the new Freshdesk Omni platform. While growth in CX remains modest, the company credits recent AI features and product simplification with improved customer retention and satisfaction.
Drivers of Future Performance
Freshworks’ outlook centers on expanding its EX platform, disciplined AI monetization, and upmarket execution, while managing margin pressures and measured CX growth.
- EX segment fuels guidance: Management expects the EX business—supported by unified platform enhancements, new AI-driven products, and upmarket wins—to drive the majority of revenue growth in the coming quarters. The integration of Fire Hydrant is anticipated to expand IT operations management capabilities and address a larger market.
- AI adoption as a revenue lever: Continued upselling of Freddie AI, combined with new agentic AI capabilities and workflow automation, is projected to increase average contract value and improve net revenue retention. However, management remains cautious about the pace of penetration and the impact on total ARR in the near term.
- Margin management and investment: Freshworks plans to balance growth investments, particularly in sales and R&D, with margin expansion. The company flagged that integrating new acquisitions and launching cloud-native device management may temporarily pressure non-GAAP operating margins, but expects operating leverage to improve over the year.
Catalysts in Upcoming Quarters
In the coming quarters, the StockStory team will be monitoring (1) the rollout and customer adoption of the cloud-native Device42 platform and Fire Hydrant integration, (2) the continued expansion of Freddie AI and its impact on average contract value and retention, and (3) the pace of migration to the Freshdesk Omni platform in the CX segment. Execution on upmarket deals and AI monetization will be focal points to assess the sustainability of revenue and margin trends.
Freshworks currently trades at $8.51, down from $8.73 just before the earnings. Is the company at an inflection point that warrants a buy or sell? The answer lies in our full research report (it’s free).
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