Freshworks delivered a positive first quarter, surpassing Wall Street’s expectations for both revenue and profits. Management attributed the results to strong demand for its employee experience (EX) and customer experience (CX) software, as well as growing adoption of its AI-powered solutions. CEO Dennis Woodside highlighted that large companies such as Sophos and Travis Perkins selected Freshworks over legacy competitors, citing faster time to value and lower total cost of ownership. The company’s focus on moving upmarket and integrating AI across its product suite drove notable customer wins and contributed to improved operational efficiency.
Is now the time to buy FRSH? Find out in our full research report (it’s free).
Freshworks (FRSH) Q1 CY2025 Highlights:
- Revenue: $196.3 million vs analyst estimates of $191.8 million (18.9% year-on-year growth, 2.3% beat)
- Adjusted EPS: $0.18 vs analyst estimates of $0.13 (39.4% beat)
- Adjusted Operating Income: $46.37 million vs analyst estimates of $33.27 million (23.6% margin, 39.4% beat)
- The company slightly lifted its revenue guidance for the full year to $819.8 million at the midpoint from $815 million
- Operating Margin: -5.3%, up from -19.5% in the same quarter last year
- Customers: 23,275 customers paying more than $5,000 annually
- Net Revenue Retention Rate: 105%, up from 103% in the previous quarter
- Annual Recurring Revenue: $784.4 million at quarter end, up 17% year on year
- Billings: $203.2 million at quarter end, up 16.4% year on year
- Market Capitalization: $4.39 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 Freshworks’s Q1 Earnings Call
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Rob Oliver (Baird) asked about the impact of Device42 on platform wins and trends in CX agent growth. CEO Dennis Woodside explained Device42 is now integral to larger deals and AI solutions continue to drive productivity and seat growth.
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Elizabeth Elliott (Morgan Stanley) inquired about internal AI-driven cost efficiencies and spending plans. Woodside described significant productivity gains and a 20% reduction in headcount, with plans to continue pressing AI to expand margins while leaning into growth investments.
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Scott Berg (Needham & Company) requested details on the revamped partner program and Q2 margin outlook. Woodside outlined a more flexible, industry-standard partner model, and CFO Tyler Sloat attributed Q2 margin shifts to compensation cycle timing and delayed expenses.
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Pinjalim Bora (JPMorgan) probed AI monetization, specifically pricing for Freddy Insights, and the net revenue retention trend. Woodside detailed the mix of consumption-based and seat-based AI pricing, while Sloat noted net retention stability with ongoing progress on churn and expansion.
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Alex Zukin (Wolfe Research) questioned resilience to macroeconomic changes and billings pull-ins. Woodside emphasized Freshworks’ presence in essential software categories and competitive pricing, while Sloat clarified that Q1 billings benefited from timing, with guidance reflecting current risk factors.
Catalysts in Upcoming Quarters
In coming quarters, the StockStory team will focus on (1) the pace of AI product adoption across Freshworks’ large installed base; (2) the effectiveness of expanded sales and marketing investments in driving upmarket customer wins; and (3) continued execution of the partner program to extend reach in key verticals. Progress on new product launches and sustained improvements in net revenue retention will also be closely monitored as indicators of long-term growth.
Freshworks currently trades at $15.40, up from $14.35 just before the earnings. Is the company at an inflection point that warrants a buy or sell? See for yourself in our full research report (it’s free).
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