Freshworks Becomes A Top Pick For 2024 On Improving Demand Trends, Says Analyst

Needham analyst Scot Berg reiterated Buy rating on the shares of Freshworks Inc FRSH and raised the price target from $25 to $30.

The analyst suggests demand for Freshworks' product suite is stable-to-modestly improving, especially at the larger customers who comprise the focus of its GTM strategy.

The analyst notes a major headwind to revenue growth has come from a decline in Net Revenue Retention (NRR) due to the companies expanding teams using Freshworks product less in CY23 than in prior years.

The analyst revealed optimism in the company’s ability to meet or exceed intermediate term financial targets detailed at the September Analyst Day, absent the overall economy dipping into a more significant recession than most economists predict.

Freshworks' operating model is quickly maturing, and will lead to at least a 300 basis points expansion in FY24 operating margin, says the analyst.

The new price target reflects higher FY24 profitability and the opportunity to re-accelerate revenue growth.

The analyst raised the FY24 revenue estimate from $695.9 million to $709.4 million and the EPS estimate from $0.28 to $0.35.

The analyst considers FRSH as the top pick in the Enterprise Software universe for 2024, based on steady to improving demand trends, predictable NTM margin leverage with a fast-maturing operating model, properly set intermediate-term expectations, and CY24 consensus estimates that appear beatable in an unpredictable macro. 

The analyst also added FRSH to the Needham Conviction List.

Price Action: FRSH shares are trading higher by 0.93% at $23.95 on the last check Thursday.