TSP Weekly Tech Stock Update—Feb 24, 2024
This Week: Palo Alto Networks stock tumbles, ZS earnings in the spotlight next week, Workday/Snowflake earnings previews, Wolfe bullish on FRSH, Stifel upbeat on CFLT, Monday moves up-market & more.
Hello from Rob…
—Freshworks (FRSH, $20.25), a provider of business software aimed primarily at the SMB segment, was upgraded to ‘Outperform’ with a price target of $27 at Wolfe Research. The firm calls out solid execution, improving fundamentals and healthy competitive dynamics.
Freshworks has two main software offerings that are driving growth: Freshdesk for customer support and Freshservice for IT service management (ITSM). The company has 20,261 customers with more than $5k in annual recurring revenue (ARR), up 14% year over year.
At the Freshworks Analyst Day last September, management set a goal of $1 billion in total revenue in 2026. The ITSM business is projected to provide much of the firepower needed to reach this target. The forecast is ITSM in a couple years will represent 60% of the company’s total ARR versus around 44% last year. Freshworks has been gaining share in ITSM, as this part of its business has been growing in the low 40% range compared to 12% growth for the market.
Freshworks has expanded the IT-focused portion of its product portfolio. In 2022, it added IT operations management (ITOM) to the mix. Meanwhile, Freshworks for Business Teams offers service management for non-IT use cases in HR, finance and legal.
In 2023, total revenue rose 20% to $596.4 million. Free cash flow totaled $77.8 million. For 2024, Freshworks expects total revenue of $703.5 million to $711.5 million (growth of 18% to 19%).
The 2025 consensus revenue estimate of $847.6 million represents growth of 19.7%. Wolfe thinks Freshworks is capable of 20% total revenue growth with expanding margins over a multi-year period.
Freshworks shares are down 13.8% YTD. The 52-week high of $24.98 was reached in December 2023.
*Inside This Issue: Cybersecurity Competition Heats Up
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