FRSH: Revenue Gains And Buybacks Will Face CX Execution Test

Analysts have lowered their fair value estimate for Freshworks from $18.00 to $13.00 per share, reflecting a more conservative profit outlook and valuation multiple, even as they acknowledge resilient revenue growth and solid cash generation.

Analyst Commentary

Bearish analysts have recently adjusted their expectations for Freshworks, pointing to a more challenging path for both growth and valuation. While they acknowledge the company’s ability to deliver double digit revenue expansion and strong free cash flow, they argue that the current setup warrants a more conservative outlook.

One group of bearish analysts lowered their price target after incorporating lower forward estimates and out year guidance into their models. They still highlight that Freshworks is executing on an efficient, durable growth strategy with Q3 revenue up 15 percent year over year and a free cash flow margin of 27 percent, but they no longer see as much upside in the shares at prior valuation multiples.

Another set of bearish analysts initiated coverage with a neutral stance and a price target aligned with the more conservative fair value range. They describe management’s 2025 revenue target for the EX segment as reasonable and note steady execution there, yet they remain guarded on the outlook for the CX segment, which they see as a source of potential growth volatility.

Across these views, the consensus among bearish analysts is that Freshworks must continue to prove that it can sustain its growth profile and cash generation while navigating segment specific pressures. Until there is clearer evidence of durable demand across both EX and CX, they see limited room for multiple expansion and have moderated their price targets accordingly.

Bearish Takeaways

• Lowered price targets reflect concerns that current valuation embeds ambitious growth and margin expectations that may be difficult to sustain, especially as guidance is recalibrated.
• Cautious views on the CX segment introduce execution risk, with bearish analysts questioning the durability and visibility of demand in that part of the business.
• Even with strong free cash flow margins, some see limited near term multiple expansion, arguing that the shares already discount much of the company’s efficiency gains.
• Neutral initiations at conservative price targets signal a wait and see stance, with bearish analysts looking for more consistent broad based growth before becoming more constructive on the stock.

What's in the News

• Unveiled major AI driven enhancements to Freshservice and Freddy AI at the Refresh event. These enhancements are aimed at automating IT workflows, improving self service, and giving IT leaders conversational insights into service patterns (Product Related Announcement).
• Introduced new DEX integrations with Riverbed Aternity and ControlUp. These integrations surface real time device telemetry in tickets, enable auto remediation, and proactively resolve endpoint issues before employees are affected (Product Related Announcement).
• Completed repurchase of 27,880,658 shares, about 9.39% of shares outstanding, for approximately $400 million under the buyback program announced November 6, 2024 (Buyback Tranche Update).
• Issued fourth quarter 2025 revenue guidance of $217 million to $220 million, reflecting 12% to 13% year over year growth, or 11% to 13% on a constant currency basis (Corporate Guidance New/Confirmed).
• Raised full year 2025 revenue outlook to $833.1 million to $836.1 million, reflecting 16% year over year growth on both reported and constant currency bases, citing strong execution and supportive market conditions (Corporate Guidance Raised).

Valuation Changes

• Fair Value Estimate, reduced significantly from $18.00 to $13.00 per share, implying a more conservative assessment of upside potential.
• Discount Rate, increased slightly from 8.43% to 8.48%, reflecting a modestly higher perceived risk profile or cost of capital.
• Revenue Growth, raised meaningfully from 11.83% to 13.99%, indicating higher expectations for top line expansion despite a more cautious valuation.
• Net Profit Margin, trimmed modestly from 13.09% to 12.41%, suggesting expectations for somewhat lower long term profitability.
• Future P/E, lowered substantially from 41.5x to 25.6x, signaling a reset in valuation multiples applied to Freshworks’ forward earnings.