In a surprising turn of events, Freshworks, the CRM software giant, witnessed a staggering 25% drop in its shares on Thursday, May 2. The nosedive followed the announcement of founder Girish Mathrubootham stepping down from his role as the firm’s CEO. This transition marks a significant change for the company, which made history as the first India-born Software-as-a-Service (SaaS) firm to trade on a US stock exchange.
Adding fuel to the fire, Freshworks revised its full-year revenue forecast downward, now projecting figures between $695 million and $705 million. This adjustment comes in stark contrast to the previous forecast ranging from $703.5 million to $711.5 million.
Mathrubootham’s move from CEO to executive chairman reflects a strategic shift within Freshworks, with Dennis Woodside poised to assume the CEO position. Woodside, who joined the company as president in 2022, brings a wealth of experience from notable roles including President at Impossible Foods, COO at Dropbox, and CEO at Motorola Mobility.
Freshworks reported a consolidated revenue of $165 million for the January-March quarter, marking a 20% year-on-year increase. Impressively, the non-GAAP operating profit surged from $3.9 million to $21.8 million compared to the same period last year. The company’s first-quarter free cash flow also experienced substantial growth, reaching $38.7 million, up from $9.1 million in the previous year.
However, the market’s response to Freshworks’ recent developments has been harsh, wiping out approximately $1.4 billion from the company’s market value, which stood at $5.45 billion based on Wednesday’s closing price. Baird Equity, a prominent brokerage firm, expressed interest in Freshworks’ pivot towards enterprise but noted a cautious stance, awaiting signs of stability and clarity regarding GenAI.
Freshworks, known for its IT service management product Freshservice, has faced challenges beyond just leadership transitions. Once eyeing a valuation close to $10 billion for its IPO, the company has witnessed its stock price plummet by over 60% from its 2021 peak.
Analysts from Piper Sandler highlighted pressure on Freshworks’ small and medium-sized business (SMB) clientele, noting challenges in expansion rates, customer additions, and churn during Q1. These observations underscore the hurdles Freshworks must navigate as it strives to regain investor confidence and chart a path towards sustained growth in a competitive market.
