Freshworks's (NASDAQ:FRSH) Q3: Beats On Revenue But Large Customer Wins Slow Down

Business software provider Freshworks (NASDAQ:FRSH) announced better-than-expected revenue in Q3 CY2025, with sales up 15.3% year on year to $215.1 million. Guidance for next quarter’s revenue was better than expected at $218.5 million at the midpoint, 1% above analysts’ estimates. Its non-GAAP profit of $0.16 per share was 25.5% above analysts’ consensus estimates.

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“Freshworks once again exceeded our previously issued estimates across growth and profitability metrics," said Dennis Woodside, Chief Executive Officer & President of Freshworks.

Company Overview

Starting as a customer service solution before expanding into a comprehensive software suite, Freshworks (NASDAQ:FRSH) provides AI-powered software-as-a-service solutions that help companies manage customer service, IT support, sales, and marketing functions.

Revenue Growth

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Thankfully, Freshworks’s 29% annualized revenue growth over the last five years was impressive. Its growth beat the average software company and shows its offerings resonate with customers, a helpful starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within software, a half-decade historical view may miss recent innovations or disruptive industry trends. Freshworks’s annualized revenue growth of 19.3% over the last two years is below its five-year trend, but we still think the results suggest healthy demand.

This quarter, Freshworks reported year-on-year revenue growth of 15.3%, and its $215.1 million of revenue exceeded Wall Street’s estimates by 3%. Company management is currently guiding for a 12.3% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 11.4% over the next 12 months, a deceleration versus the last two years. This projection doesn't excite us and implies its products and services will face some demand challenges. At least the company is tracking well in other measures of financial health.

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Billings

Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.

Freshworks’s billings punched in at $224 million in Q3, and over the last four quarters, its growth slightly outpaced the sector as it averaged 16.9% year-on-year increases. This performance aligned with its total sales growth and shows the company is successfully converting sales into cash. Its growth also enhances liquidity and provides a solid foundation for future investments.

Customer Retention

One of the best parts about the software-as-a-service business model (and a reason why they trade at high valuation multiples) is that customers typically spend more on a company’s products and services over time.

Freshworks’s net revenue retention rate, a key performance metric measuring how much money existing customers from a year ago are spending today, was 105% in Q3. This means Freshworks would’ve grown its revenue by 4.8% even if it didn’t win any new customers over the last 12 months.

Freshworks has an adequate net retention rate, showing us that it generally keeps customers but lags behind the best SaaS businesses, which routinely post net retention rates of 120%+.

Key Takeaways from Freshworks’s Q3 Results

We were impressed by Freshworks’s optimistic EPS guidance for next quarter, which blew past analysts’ expectations. We were also glad its full-year EPS guidance trumped Wall Street’s estimates. On the other hand, its new large contract wins slowed. Overall, this print had some key positives. The stock traded up 4.2% to $11.54 immediately following the results.

Freshworks had an encouraging quarter, but one earnings result doesn’t necessarily make the stock a buy. Let’s see if this is a good investment. If you’re making that decision, you should consider the bigger picture of valuation, business qualities, as well as the latest earnings. We cover that in our actionable full research report which you can read here, it’s free for active Edge members.