At the start of the month, Freshworks stocks plummeted by 27 percent.
The plunge occurred after the CRM stalwart made a spate of significant announcements during its Q1, 2024, earnings call.
These included a CEO transition, the acquisition of Device42, and a cut back on its revenue guidance for the financial year 2024.
Covering the news on May 2, 2024, Bloomberg Television stated:
Investors [are] bailing out of the stock, sending it down on its worst day since it went public about three years ago.
The extreme market reaction may come as somewhat of a surprise. After all, Freshworks did beat earnings estimates in the last quarter, achieving revenues of $165.1MN. That’s up 20 percent year-over-year (YoY).
However – alongside the announcement slew catching everyone off guard - investors appear concerned that generative AI (GenAI) and automation may threaten user numbers across Freshworks’ bread-and-butter customer service offerings.
Indeed, Brian Schwartz, Managing Director at Oppenheimer, wrote in an investor note: “The issues with the customer service business and product-led growth motion look more structural than transitional, with generative AI adoption a threat to seat-compression.
In our view, Freshworks has become a transition story with new leadership and execution challenges pushing out reinvigorating top-line growth anytime soon.
That said, some may disagree with such assertations. After all, 61 percent of customer service leaders expect headcount reductions of only five percent or less due to GenAI – as per Gartner.
Given such research, there is a case for the market over-hyping GenAI’s short-term impact on seat counts. Indeed, it may have overreacted.
Nevertheless, the other announcements may have also incited the fluster, as explored below.
The CEO Transition
On May 2, Freshworks named Dennis Woodside its new CEO, taking over from Girish Mathrubootham, who will become Executive Chairman.
Mathrubootham led Freshworks from a startup to a global CX player, with 67,000 global customers.
That’s quite the rise, and – given the now former CEOs success – his transition perhaps did have a significant impact on the stock.
However, Mathrubootham has pledged to remain engaged with Freshworks’ product vision, customers, and employees.
Moreover, his replacement has spent 18 months under Mathrubootham’s wing as President.
Now, Woodside – who has leadership experience at Dropbox and Google - aims to defy Schwartz’s prediction and quickly reinvigorate growth.
