What Happened:

Shares of business software provider Freshworks (NASDAQ: FRSH) fell 28.9% in the pre-market session after the company reported first-quarter results and provided full-year revenue guidance below expectations. The full year sales outlook was lowered to a range of $695.0 - $705.0m (vs. previous expectation of $703.5 - $711.5m). Additionally, it reported smaller net additions due to increased small-to-medium-sized business churn. The company also announced a leadership change, with Founder and Chief Executive Officer Girish Mathrubootham transitioning to the role of Executive Chairman. Dennis Woodside will become Chief Executive Officer and President. Overall, this was a weaker quarter for the company, given the poor guidance.

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What is the market telling us:

Freshworks's shares are very volatile and over the last year have had 13 moves greater than 5%. But moves this big are very rare even for Freshworks and that is indicating to us that this news had a significant impact on the market's perception of the business. 

The biggest move we wrote about over the last year was 9 months ago, when the company gained 15.9% on the news that the company reported a "beat and raise" quarter. Second-quarter results surpassed analysts' expectations for revenue, operating profits, free cash flow and earnings per share (EPS). The number of customers spending more than $5k in annual recurring revenue (ARR) continued to grow and came in ahead of Consensus. Retention rate was also stable. Moving ahead, Revenue and EPS guidance for the next quarter and the full year were roughly in line with expectations. The company touched on its AI initiatives stating, "In Q2, we launched new generative AI enhancements across our product lines and outperformed our estimates across all our key financial metrics. I'm excited about the opportunity for companies to take advantage of our software to delight their customers and employees." 

Overall, it was a positive quarter for the company, with a decent beat of key estimates and encouraging guidance.

Freshworks is down 38.1% since the beginning of the year, and at $13.68 per share it is trading 44.1% below its 52-week high of $24.48 from December 2023. Investors who bought $1,000 worth of Freshworks's shares at the IPO in September 2021 would now be looking at an investment worth $287.59.

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