Freshworks’ Q2 results outpaced Wall Street’s revenue and profit expectations, yet the market responded negatively, reflecting concerns about future growth and profitability. Management credited the quarter’s performance to robust expansion in its Employee Experience and Customer Experience platforms, with CEO Dennis Woodside highlighting, “Our strategy has focused on three key growth drivers: investing in Employee Experience, delivering AI capabilities, and accelerating adoption in customer experience.” The company pointed to steady demand for its AI-powered solutions and significant customer wins across both new and existing accounts as major contributors to quarterly growth.
Is now the time to buy FRSH? Find out in our full research report (it’s free).
Freshworks (FRSH) Q2 CY2025 Highlights:
- Revenue: $204.7 million vs analyst estimates of $198.9 million (17.5% year-on-year growth, 2.9% beat)
- Adjusted EPS: $0.18 vs analyst estimates of $0.12 (55.9% beat)
- Adjusted Operating Income: $44.83 million vs analyst estimates of $28.74 million (21.9% margin, 56% beat)
- The company slightly lifted its revenue guidance for the full year to $825.9 million at the midpoint from $819.8 million
- Adjusted EPS guidance for the full year is $0.57 at the midpoint, roughly in line with what analysts were expecting
- Operating Margin: -4.2%, up from -25.1% in the same quarter last year
- Customers: 23,975 customers paying more than $5,000 annually
- Net Revenue Retention Rate: 106%, up from 105% in the previous quarter
- Annual Recurring Revenue: $836.3 million at quarter end, up 18.1% year on year
- Billings: $213.4 million at quarter end, up 14.8% year on year
- Market Capitalization: $3.58 billion
While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.
Our Top 5 Analyst Questions From Freshworks’s Q2 Earnings Call
- David Hynes (Canaccord Genuity) asked about the pace of AI agent adoption versus forecasts; CEO Dennis Woodside responded that AI usage is pacing at or slightly above internal expectations, with more clarity expected as new products mature.
- Scott Berg (Needham & Company) questioned the long-term contribution of the partner channel; Woodside explained that partner-influenced deals are growing in size and maturity, with the potential for partners to touch an even greater share of business over time.
- Ria Naidu (Jefferies) inquired about the impact of appointing Ian as CRO and potential changes in sales organization; Woodside said the new sales leadership is settling in well and does not anticipate major changes going forward.
- Elizabeth Porter (Morgan Stanley) asked about the future trajectory of AI ARR and its incremental impact; CFO Tyler Sloat noted that AI adoption is still early, with a large portion of customers yet to pay for AI products, and that Agentic AI pricing will be finalized later in the year.
- Brian Schwartz (Oppenheimer & Company) probed net revenue retention trends; Sloat clarified that retention was in line with expectations, with Device42’s integration creating some short-term pressure but underlying expansion and churn metrics showing improvement.
Catalysts in Upcoming Quarters
As we look to upcoming quarters, our analysts will be monitoring (1) the pace and breadth of AI feature adoption and its effect on expansion within the existing customer base, (2) the impact of Device42’s cloud rollout and integration on enterprise deal momentum, and (3) the effectiveness of increased sales and marketing investments in driving new customer acquisition and partner-led growth. The trajectory of net revenue retention and cross-sell success will also be important indicators.
Freshworks currently trades at $12.76, down from $13.91 just before the earnings. Is the company at an inflection point that warrants a buy or sell? The answer lies in our full research report (it’s free).
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