Why Freshworks stock fell 15.8% last month


What happened

Shares of freshworks (NASDAQ: FRSH) fell 15.8% in February, according to data from S&P Global Market Intelligence. The enterprise software company’s stock lost ground after reporting its fourth quarter results.

Freshworks released its fourth quarter results on Feb. 10, delivering sales that beat market expectations and earnings in line with analysts’ expectations. The customer relationship management (CRM) software company reported a non-GAAP (adjusted) loss per share of $0.06 on revenue of $105.5 million. Meanwhile, the average analyst estimate called for revenue of $95.34 million during the period.

So what

Freshworks revenue grew 44.5% year-over-year in the fourth quarter, and the company posted a net dollar retention rate of 114%, meaning existing customers increased their expenses of 14% compared to the period of the previous year on average. For the full year, revenue increased 49% to $371 million.

The company even provided a better-than-expected forecast with its fourth-quarter report, but that still wasn’t enough to prevent a double-digit selloff as investors left growth-reliant software companies last month.

Image source: Getty Images.

Now what

Freshworks stock continued to fall in March. The company’s share price is now down 7.1% in the month so far.

FRSH Chart

FRSH data by YCharts.

For the current quarter, Freshworks’ median forecast calls for revenue of $108 million, well above analysts’ average target of $106.5 million ahead of the company’s fourth quarter report. . Management’s median target for the current fiscal year calls for sales of $490.7 million, which was also higher than analysts’ previous average target.

Following recent sales, Freshworks now has a market capitalization of approximately $4.7 billion and is valued at approximately 9.6 times projected sales for this year. This is still a growth-dependent valuation, and the stock could experience more short-term turbulence if investors continue to pull out of unprofitable companies that trade at relatively high price-to-sell multiples.

Freshworks completed its IPO last September and is now trading down around 64% from the market’s close on the day of its IPO. For long-term investors who see promise in the company’s CRM software, the big pullback may have created an attractive buying opportunity, but it’s probably best to go ahead knowing that the trading could be difficult in the short term.

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Keith Noonan has no position in the stocks mentioned. The Motley Fool has no position in the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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