Business software provider Freshworks (NASDAQ: FRSH) reported revenue ahead of Wall Street’s expectations in Q1 CY2025, with sales up 18.9% year on year to $196.3 million. Guidance for next quarter’s revenue was better than expected at $198.8 million at the midpoint, 0.6% above analysts’ estimates. Its non-GAAP profit of $0.18 per share was 39.4% above analysts’ consensus estimates.
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Freshworks (FRSH) Q1 CY2025 Highlights:
- Revenue: $196.3 million vs analyst estimates of $191.8 million (18.9% year-on-year growth, 2.3% beat)
- Adjusted EPS: $0.18 vs analyst estimates of $0.13 (39.4% beat)
- Adjusted Operating Income: $46.37 million vs analyst estimates of $33.27 million (23.6% margin, 39.4% beat)
- The company slightly lifted its revenue guidance for the full year to $819.8 million at the midpoint from $815 million
- Operating Margin: -5.3%, up from -19.5% in the same quarter last year
- Free Cash Flow Margin: 28.2%, up from 21.4% in the previous quarter
- Customers: 23,275 customers paying more than $5,000 annually
- Net Revenue Retention Rate: 105%, up from 103% in the previous quarter
- Billings: $203.3 million at quarter end, up 16.4% year on year
- Market Capitalization: $4.20 billion
“Freshworks had another fantastic quarter, outperforming our previously provided financial estimates in Q1 with revenue growing 19% year-over-year to $196.3 million, operating cash flow margin of 30% and adjusted free cash flow margin of 28%," said Dennis Woodside, Chief Executive Officer & President of Freshworks.
Company Overview
Founded in Chennai, India in 2010 with the idea of creating a “fresh” helpdesk product, Freshworks (NASDAQ: FRSH) offers a broad range of software targeted at small and medium-sized businesses.
Sales Growth
Examining a company’s long-term performance can provide clues about its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last three years, Freshworks grew its sales at a decent 22.9% compounded annual growth rate. Its growth was slightly above the average software company and shows its offerings resonate with customers.
This quarter, Freshworks reported year-on-year revenue growth of 18.9%, and its $196.3 million of revenue exceeded Wall Street’s estimates by 2.3%. Company management is currently guiding for a 14.2% year-on-year increase in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 11.3% over the next 12 months, a deceleration versus the last three years. Despite the slowdown, this projection is above the sector average and indicates the market is baking in some success for its newer products and services.
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Billings
Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.
Freshworks’s billings punched in at $203.3 million in Q1, and over the last four quarters, its growth was impressive as it averaged 19.2% year-on-year increases. This performance aligned with its total sales growth, indicating robust customer demand. The high level of cash collected from customers also enhances liquidity and provides a solid foundation for future investments and growth. 
Customer Retention
One of the best parts about the software-as-a-service business model (and a reason why they trade at high valuation multiples) is that customers typically spend more on a company’s products and services over time.
Freshworks’s net revenue retention rate, a key performance metric measuring how much money existing customers from a year ago are spending today, was 105% in Q1. This means Freshworks would’ve grown its revenue by 5.3% even if it didn’t win any new customers over the last 12 months.
Freshworks has a decent net retention rate, showing us that its customers not only tend to stick around but also get increasing value from its software over time.
Key Takeaways from Freshworks’s Q1 Results
We were impressed by Freshworks’s significant improvement in new large contract wins this quarter. We were also glad its billings outperformed Wall Street’s estimates. Overall, we think this was a decent quarter with some key metrics above expectations. The stock traded up 9.4% to $15.70 immediately after reporting.
Freshworks may have had a good quarter, but does that mean you should invest right now? The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.