Cloud, AI And Remote Work Trends Will Fuel Global Expansion

Key Takeaways

• Rapid AI adoption and successful enterprise replacement of legacy systems suggest Freshworks could see much faster and broader revenue acceleration and retention improvement than analysts expect.
  
• Growth opportunities from integrated SaaS offerings, new cloud-native products, and expanding strategic partnerships position Freshworks for sustained share gains and margin expansion globally.
  
• Mounting competition, regulatory costs, dependence on AI-driven growth, and concentrated customer risk threaten profitability, pricing power, and long-term revenue expansion.

Catalysts

A software development company, provides software-as-a-service products in North America, Europe, the Middle East, Africa, Asia Pacific, and internationally.

• While analyst consensus expects AI products like Freddy AI Agent and Copilot to gradually become growth drivers, the unprecedented speed of AI adoption-with double-digit attach rates in SMB and over 55% in new large customer deals-signals a rapid and broad deployment that could drive outsized revenue acceleration and significantly boost net dollar retention far sooner and more substantially than current forecasts suggest.
  
• Analysts broadly agree that enterprise and mid-market adoption will support ARR growth, but Freshworks' success replacing entrenched legacy systems at major organizations, along with expanding use cases across entire business functions (IT, HR, legal, payroll), points to a much larger wallet share opportunity per customer and the real possibility of sustained 20 percent-plus revenue growth and margin expansion as cross-sell/upsell intensifies.
  
• With the rise of distributed and remote work accelerating enterprise demand for agile, unified SaaS solutions, Freshworks is uniquely positioned to consolidate spend across EX and CX as organizations seek to rationalize vendors, likely leading to a step-change in average revenue per user and longer, more stable multi-year contracts that enhance earnings visibility and lower churn.
  
• The forthcoming cloud-native version of Device42 and ongoing full integration with Freshservice will unlock large-ticket deals among hybrid infrastructure clients, providing a powerful upmarket lever and opening new cross-sell pathways that can drive higher ARPU and materially lift overall ARR and gross margins.
  
• The expanding global partner network is delivering larger, higher-quality enterprise opportunities-recent partnerships with top integrators indicate a path to accelerated international penetration, enabling Freshworks to rapidly scale its go-to-market reach, win share from sluggish incumbents, and achieve outsized, compounding revenue and free cash flow growth across diverse verticals.

Freshworks Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Freshworks compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Freshworks's revenue will grow by 13.4% annually over the next 3 years.
• Even the bullish analysts are not forecasting that Freshworks will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Freshworks's profit margin will increase from -7.0% to the average US Software industry of 13.5% in 3 years.
• If Freshworks's profit margin were to converge on the industry average, you could expect earnings to reach $154.0 million (and earnings per share of $0.59) by about August 2028, up from $-54.9 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 57.9x on those 2028 earnings, up from -68.7x today. This future PE is greater than the current PE for the US Software industry at 37.6x.
• Analysts expect the number of shares outstanding to decline by 3.53% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.45%, as per the Simply Wall St company report.

Freshworks Future Earnings Per Share Growth

Risks

• Intensifying competition from well-capitalized SaaS and AI suite vendors like Salesforce, ServiceNow, and Zendesk puts continued pressure on Freshworks' ability to maintain premium pricing and sustainable gross margins, which could ultimately weigh on overall earnings.
  
• With the business model increasingly dependent on rapid AI innovation and agentic automation as strategic growth drivers, the need for heavy ongoing R&D investment and potential technology integration risks may erode profitability and put long-term net margin expansion at risk if product adoption slows or lags the competition.
  
• The expanding global regulatory landscape for data privacy (GDPR, CCPA, and likely new standards) increases compliance costs and limits data access, which can significantly raise selling, general, and administrative expenses and may weaken Freshworks' new customer acquisition funnel, reducing revenue growth.
  
• Economic uncertainty and the possibility of increased business consolidation among small and medium-sized enterprises, which compose a large share of Freshworks' customer base, could contract its addressable market and directly suppress future revenue growth.
  
• Ongoing customer concentration risk, especially as larger enterprise clients gain bargaining power or churn to other providers, could result in unpredictable or declining quarterly revenues and rising volatility in earnings, especially if expansion and upsell into the existing customer base stalls due to commoditization or weaker product differentiation.

Valuation

• The assumed bullish price target for Freshworks is $26.79, which represents two standard deviations above the consensus price target of $20.69. This valuation is based on what can be assumed as the expectations of Freshworks's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $27.0, and the most bearish reporting a price target of just $18.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $1.1 billion, earnings will come to $154.0 million, and it would be trading on a PE ratio of 57.9x, assuming you use a discount rate of 8.4%.
• Given the current share price of $12.95, the bullish analyst price target of $26.79 is 51.7% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.