Freshworks revenue forecast beats estimates as AI adoption accelerates despite profit concerns

Freshworks forecasts annual revenue above estimates on strong AI-driven software demand

Feb 10 (Reuters) - Freshworks (FRSH.O), opens new tab forecast annual revenue above Wall Street estimates on Tuesday, betting on growing adoption of its software tools that incorporate artificial intelligence to automate customer support and IT services. Businesses are increasingly adopting AI-driven software to efficiently manage IT services, automate workflows and improve customer support, driving demand for companies such as Freshworks, ServiceNow (NOW.N), opens new tab and Salesforce (CRM.N), opens new tab. The forecast comes amid widespread concern surrounding the potential impact of newer AI tools on various services offered by established software firms, although analysts have downplayed the risks. On January 30, Anthropic introduced plugins for customer support, legal, finance and sales on Claude Cowork, automating tasks for white-collar workers and potentially disrupting software firms, contributing to a sector-wide selloff. Freshworks CEO Dennis Woodside said customers won't just build everything directly, arguing that creating full enterprise IT and customer-service systems is complex and takes years. "We've spent a decade to build a system of record and a system of interaction that understands everything about your IT environment," Woodside said in an interview with Reuters. On concerns that AI could shrink the number of paid software seats, Woodside said Freshworks is still growing its user count. "We're taking share from much bigger incumbents, like ServiceNow and BMC, and Atlassian, and that's how we're growing our business," he said. Freshworks sells licenses for tools like Freshdesk for customer service and Freshservice for IT support, which are billed per the number of people logging into those services, unlike usage-based pricing used by some AI products. The company forecast revenue between $952 million and $960 million for 2026, above estimates of $945.3 million, according to data compiled by LSEG. It forecast adjusted profit per share to be between 55 cents and 57 cents for 2026, below estimates of 69 cents, as the company expects a higher tax rate. Fourth-quarter revenue rose 14% to $222.7 million, beating estimates of $218.8 million. Adjusted profit per share of 14 cents also exceeded estimates of 11 cents. Reporting by Anhata Rooprai in Bengaluru; Editing by Vijay Kishore Our Standards: The Thomson Reuters Trust Principles., opens new tab

Freshworks ends the year in the black as AI adoption takes off and the mid-market prepares to make some fresh choices

Freshworks had a strong end to the year, its bottom line boosted by a tax benefit, but also demonstrating healthy ongoing revenue growth. For Q4, net profit of $191.4 million turned around a net loss of $21.9 million for the same period last year. A "release of valuation allowance" gain of $151 million and deferred tax of $3.1 million helped here, but even without those, the firm turned a profit of $46.8 million. Revenue meanwhile grew by 14% year-on-year to $222 million. For the full year, total revenue was $838.8 million, up 16%. For CEO Dennis Woodside, the past few months have been "a historic inflection point" for the firm: For the first time in our company's history, we achieved profitability for the full year and generated record free cash flow..we remain on track for sustained growth and profitability exiting 2026. Users are getting larger as are deals, he noted, with 15 customers paying more than $1 million per annum in Annual Recurring Revenue (ARR) as of the end of 2025: We saw an upmarket momentum surge with our enterprise cohorts outpacing overall growth, proving our ability to consistently win and scale within the world's most complex organizations. As of Q4, we now have over 1,500 customers with greater than $100,000 in ARR, an increase of 28% year-over-year and over 3,700 customers with greater than $50,000 in ARR, an increase of 23% year-over-year. New customers during Q4 included Armanino, British Film Institute, ENGIE Impact, EquipmentShare, Kidde, and NBT Bancorp. Woodside said: We have brought ITSM (IT Service Management), ITOM (IT Operations Management), ITAM (IT Asset Management) and ESM (Enterprise Service Management) under one cohesive roof. This one platform advantage has enabled us to aggressively win bigger deals. We're winning the mid-market with a continued roster of displacements, whether it's EquipmentShare's high-growth debut on NASDAQ or a global sustainability consultancy's global scale, we are winning. Most notably, a global semiconductor company recently abandoned a decade-long ServiceNow environment for Freshservice, projecting a 30% cost savings and 20% to 30% faster resolution times powered by Freddy AI. Over 8,000 customers are using - and paying for - Freddy AI, making it "a tangible revenue engine", he added: Customers like iPostal1 are using Freddy AI Agent Studio to resolve 54% of queries automatically and seeing a 99% improvement in interaction speed. When Vermeer Corporation cut their resolution times by 50% using Freddy AI, they drove customer satisfaction up to 95% and sparked enterprise-wide adoption. We brought stabilization to the CX business. We did this by continuing to simplify our core Freshdesk product experience to make it easier to implement and maintain. We improved time to value, customer retention and our customers are also staying longer because they are seeing tangible results with AI features in Freshdesk. In terms of product offering, the firm last month announced the acquisition of AI-powered incident management platform provider, FireHydrant. Woodside explained the rationale for this: This acquisition opens an $8 billion addressable market in IT Operations Management or ITOM and sets the groundwork for our expansion into AIOps. FireHydrant will integrated into Freshservice unified platform over the course of this year, he added: With all these components, we provide a unified service operations platform for sophisticated global IT teams and beyond. Our ITSM is enterprise grade for service management. Device42 provides world-class asset management capabilities soon to be in the cloud. Freshservice for business teams enables any department in any company to deliver amazing service. And FireHydrant forms the basis for growth in ITOM. We've got, I would say, a good start. We still got 75,000 customers, so we have a long way to go in terms of driving full penetration. A pragmatic assessment from Woodside about the firm's AI adoption rate. The biggest opportunities for Freddy exist within the installed base in the form of upsells or as something bundled in deals. But: I know there's a lot of talk about the impact of AI and how is AI going to affect seat-based pricing. For us, it's a share gain. Elsewhere 2026 and beyond presents other sales opps, he argues, citing the mid-market - defined as around 5,000 person firms with between $1 billion and $3 billion revenues - and the dynamics kicking in there: [The] mid-sized enterprise is looking for choice, and they're looking for a platform that satisfies all of the different needs that you have in running a midsized enterprise IT department from ITSM to ITOM to ITAM to ESM. And that's what we built over the last couple of years. If you think about a lot of the decisions that were made two or three years ago to stay with BMC or Ivanti or ServiceNow, we were not in the market the way we are now. Those customers are coming up for renewal. They're looking around. They're seeing the recognition that we have from Forrester and Gartner. They're seeing all the customer references that we now have from large meaningful companies that have made the switch. They're talking to the CIOs of those companies that have made the switch. We've got a really positive referral cycle going, and they're seeing the value. He added: That's a large segment over time that is going to continue to grow with us. If anything, if those customers are squeezed for cost or efficiency or anything like that, they're going to turn to us more than they would to a legacy platform like a BMC or Ivanti or ServiceNow, which are much more expensive, not just from a licensing cost, but they're expensive to run. They're expensive to keep up and running and keep current with their business processes. Their AI takes longer to implement. All that is much easier on our platform. That's why the growth is coming from there. You can see it in our over 50,000 customer count and the percentage of our revenue that's coming from over 50,000 customers.

Freshworks forecasts annual profit below estimates amid AI-driven software worries

While businesses are adopting AI-driven software from firms such as Freshworks for IT services, workflow automation and customer support improvement, ⁠the new ⁠sophisticated tools from AI firms promising to do the same could threaten their market. Software development firm Freshworks forecast annual profit below Wall Street estimates on Tuesday, fanning wider concerns around the industry amid advancements in artificial intelligence services. Shares of the software company fell over 6% in extended trading. While businesses are adopting AI-driven software from firms such as Freshworks for IT services, workflow automation and customer support improvement, ⁠the new ⁠sophisticated tools from AI firms promising to do the same could threaten their market. On January 30, Anthropic introduced plugins for customer support, legal, finance and sales on Claude Cowork, which potentially could disrupt software firms, contributing to a sector-wide selloff. Analysts, however, have downplayed the risks. Freshworks forecast adjusted profit per share to be between 55 cents and 57 cents for 2026, below estimates of 69 cents, according to data ⁠compiled by LSEG, as the company expects a higher tax rate. The profit forecast also reflects the impact of the company's acquisition of incident management platform FireHydrant ⁠and a focus on reinvestment in the business. CEO attempts to dispel AI concerns Freshworks CEO Dennis Woodside said customers won't just build everything directly, arguing that creating full enterprise IT and customer-service systems is complex and takes years. "We've spent a decade to build a system of record and a system of interaction that understands everything about your IT environment," Woodside said in an interview with Reuters. On concerns that AI could shrink the number of paid software seats, Woodside said Freshworks is still growing its user count. "We're taking share from much bigger incumbents, like ServiceNow and BMC, and Atlassian, and that's how ⁠we're growing our business," he said. Freshworks sells licenses for tools like Freshdesk for customer service and Freshservice for IT support, which are billed per the number of people logging into those services, unlike usage-based pricing used by some AI products. The company forecast annual revenue between $952 million and $960 million, above estimates of $945.3 million. Fourth-quarter revenue rose 14% to $222.7 million, beating estimates of $218.8 million. Adjusted profit per share of 14 cents also exceeded estimates of 11 cents.

Freshworks forecasts annual profit below estimates amid AI-driven software worries

Feb 10 (Reuters) - Software development firm Freshworks forecast annual profit below Wall Street estimates on Tuesday, fanning wider concerns around the industry amid advancements in artificial intelligence services. Shares of the software company fell over 6% in extended trading. While businesses are adopting AI-driven software from firms such as Freshworks for IT services, workflow automation and customer support improvement, the new sophisticated tools from AI firms promising to do the same could threaten their market. On January 30, Anthropic introduced plugins for customer support, legal, finance and sales on Claude Cowork, which potentially could disrupt software firms, contributing to a sector-wide selloff. Analysts, however, have downplayed the risks. Freshworks forecast adjusted profit per share to be between 55 cents and 57 cents for 2026, below estimates of 69 cents, according to data compiled by LSEG, as the company expects a higher tax rate. The profit forecast also reflects the impact of the company's acquisition of incident management platform FireHydrant and a focus on reinvestment in the business. CEO ATTEMPTS TO DISPEL AI CONCERNS Freshworks CEO Dennis Woodside said customers won't just build everything directly, arguing that creating full enterprise IT and customer-service systems is complex and takes years. "We've spent a decade to build a system of record and a system of interaction that understands everything about your IT environment," Woodside said in an interview with Reuters. On concerns that AI could shrink the number of paid software seats, Woodside said Freshworks is still growing its user count. "We're taking share from much bigger incumbents, like ServiceNow and BMC, and Atlassian, and that's how we're growing our business," he said. Freshworks sells licenses for tools like Freshdesk for customer service and Freshservice for IT support, which are billed per the number of people logging into those services, unlike usage-based pricing used by some AI products. The company forecast annual revenue between $952 million and $960 million, above estimates of $945.3 million. Fourth-quarter revenue rose 14% to $222.7 million, beating estimates of $218.8 million. Adjusted profit per share of 14 cents also exceeded estimates of 11 cents. (Reporting by Anhata Rooprai in Bengaluru; Additional reporting by Arsheeya Bajwa; Editing by Vijay Kishore and Alan Barona)