Freshworks Cooks Up Strong 1Q23 Results, but Is the Recipe for Success Sustainable Amid Pricing Model Shifts?

Needham analyst Scott Berg reiterates Freshworks Inc FRSH with a Buy and a $25 price target.

Freshworks posted strong 1Q23 results with their first quarter of positive non-GAAP operating income as a public company, a solid $3.5 million revenue beat, and guidance indicating increased operating leverage in FY23. 

While the company's recent focus has been on improving operational efficiencies at its more significant scale, new business metrics are holding up better than expected in a worsening macro. 

Recent GTM improvements and optimizations yield incremental confidence in the company's ability to drive >500bps of annual operating margin leverage in FY23 and FY24.

JMP Securities analyst Patrick Walravens reinstates Freshworks with a Market Outperform and a $23 price target. The re-rating reflects better-than-expected 1Q23 results.

The analyst remains curious about how it will evolve its pricing model as large language models increasingly make per-agent pricing less relevant. 

He believes this transition may represent an opportunity for Freshworks for several reasons, including compared to its competitors, Freshworks is still in much more of a new customer acquisition mode, the company offers a platform and suite of solutions across which it can drive value-based pricing, and the company already has some consumption-based pricing in place with its Freshchat service that charges $75 per additional 1,000 bot sessions/month. 

Credit Suisse analyst Rich Hilliker reiterates Freshworks with a Neutral and a $16 price target. The Q1 results were solid, with +20% reported and CC revenue growth and operating income well ahead of consensus expectations. 

Existing customer expansion continues to see pressure; more work remains to diversify this motion and capitalize on the multi-persona opportunity. 

FRSH's growth and profitability guidance raise impressed the analyst.

FRSH is well positioned to capture incremental wallet share once it finalizes its B2B and B2C unified customer record rollout, discovers how to unlock its expansion motion fully, and establishes, optimizes, and operationalizes repeatable multi-line of business sales.

Price Action: FRSH shares traded higher by 0.08% at $12.87 on the last check Wednesday.