Freshworks Faces Growing Competition from AI-Focused Support Services Providers

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San Mateo-based Freshworks (Nasdaq: FRSH) is focusing on deploying AI capabilities across all its offerings. It recently reported its quarterly results that outpaced market expectations. The overall economic conditions resulted in a weaker outlook.

Freshworks’s Financials

For the third quarter, revenues grew 33% to $128.8 million. On a constant currency basis, revenues would have grown 37% over the year. Net loss was $0.01 per share compared with a net loss of $0.04 per share a year ago. Analysts expected revenues of $125.54 million and a loss of $0.05 per share.

Among key metrics, the number of customers contributing more than $5,000 in ARR grew 19% over the year to 16,713. Net dollar retention rate was 107% and 113% adjusting for constant currency, compared to 111% a quarter ago and 117% a year ago.

For the fourth quarter, Freshworks forecast revenues in the range of $129.2-$131.2 million and a loss per share of $0.05-$0.03. The market expects revenues of $132.52 million with a loss of $0.05 per share for the quarter. The company expects revenues in the range of $494-$496 million and a loss per share of $0.13-$0.11 for the current fiscal year. Analysts expect revenues of $493.34 million and a loss of $0.17 per share.

Freshworks’s AI Focus

Freshworks has been focusing on delivering product upgrades that leverage AI capabilities. It recently added new auto-complete responses into Freshchat that help turn it into a high-speed engagement solution for model CX space. It added the Freddy auto-triage feature into the Freshdesk product where the system automatically categorizes, prioritizes, and routes the ticket to the right support agent, thus saving several manual hours of effort for the agents so that they can solve critical issues.

It also enhanced the unified CRM solution by adding AI-powered features to help sales and marketing teams increase productivity to win more business. Freddy AI for Freshsales includes new intelligent lead scoring that can help businesses understand how customers use their product and direct them to customers who are ready to buy more. Its AI will grow by learning from customer data and behavior to deliver insights and predictions that will help companies make data-driven decisions and have more personalized conversations with their customers. It is already helping customers with its predictive lead scoring that helps identify buyers that are most likely to reorder and alert sellers.

Besides AI capabilities, Freshworks also added several new capabilities to drive product efficiency and improve user and consumer experience. Within CX, it added new channels like Instagram, Google Business Messages, and WhatsApp and continued to make the integrations more seamless. Now Freshchat has the ability to bring support for customer emails into a unified agent inbox. For organizations, Freshworks has made it easier and more secure to extend Freshservice beyond the IT department to other support business teams including HR, finance, and legal teams.

According to a recent report, the global customer care AI market size was valued at $1.16 billion in 2021 and is expected to grow 23% annually over the period 2022-2030. The continuing demand for higher quality and efficient customer service is driving the adoption of AI within customer care service providers.

There are several smaller vendors that are focusing on leveraging AI capabilities. For instance, Raghu Ravinutala’s Yellow.ai began by automating conversations on Messenger and has grown to drive autonomous transactions across multiple channels and multiple languages.

Then there is Raj Koneru’s Kore.ai that is a fast-growing company in the conversational AI space helping enterprises automate their interactions with their customers, employees, and partners. And, Muddu Sudakar’s Aisera that was set up with a vision to automate customer support by building an AI-driven service desk.?While all of these players are relatively small, they have been building an impressive offering within AI-driven customer and enterprise support market.

Freshworks’s stock is currently trading at $14.96 with a market capitalization of $4.31 billion. It hit a 52-week high of $41.75 in November last year and had fallen to a 52-week low of $10.51 in June this year.

Disclosure:?All investors should make their own assessments based on their own research, informed interpretations, and risk appetite. This article expresses my own opinions based on my own research of product-market fit, channel execution, and other factors. My primary interest is in product strategy. While this may have bearing on stock movements, my writings tend to focus on long-term implications. The information presented is illustrative and educational, but should not be regarded as a complete analysis nor recommendation to buy or sell the securities mentioned herein. I am not a registered investment adviser and I am not receiving compensation for this article. I am an investor in this company.

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