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On Wednesday, JPMorgan adjusted its outlook on Freshworks Inc (NASDAQ:FRSH), reducing the price target to $17 from the previous $22, while maintaining an Overweight rating on the company’s stock. The current analyst consensus shows targets ranging from $13 to $27, with Freshworks trading at $12.21. The downward revision reflects a cautious but optimistic stance by the analysts ahead of Freshworks’ first-quarter earnings report, scheduled for April 29. They anticipate that the company might achieve its Q1 revenue and billings goals, but the outlook for Q2 billings remains uncertain.According to InvestingPro, 10 analysts have recently revised their earnings estimates upward for the upcoming period, suggesting growing confidence in the company’s near-term performance.
The analysts noted that while the macroeconomic conditions continue to be unpredictable, Freshworks’ full-year revenue guidance seems conservative. It suggests a more significant decline in net-new revenue than what was implied in the initial guidance for 2024. This comes despite the company’s impressive 20.79% revenue growth over the last twelve months and maintaining strong gross profit margins of 84.27%. This conservative stance is contrasted by comments from a Global Systems Integrator (GSI), who has observed some stability in their Freshworks practice at the start of the year, though the impact of the changing macro environment on the mid-market space is yet to be fully understood.
Despite the stock’s 24% year-to-date decline, which is sharper than the 14% drop in the IGV index, JPMorgan believes the current trading price may not fully reflect the company’s potential acquisition value. InvestingPro analysis suggests the stock is currently undervalued, with additional metrics and insights available in the comprehensive Pro Research Report, which provides deep-dive analysis of Freshworks among 1,400+ top US stocks. The firm suggests that the stock is trading at 11 times its expected calendar year 2026 unlevered free cash flow (EV/CY26 uFCF) or less than 1 times growth-adjusted EV/uFCF, indicating that it might be pricing in a worst-case scenario.
Freshworks’ exposure to small and medium-sized businesses (SMBs) is seen as a risk in the current economic climate, with investors likely to shy away from companies heavily reliant on this segment. However, any signs of stability could lead to disproportionate gains in the stock price. The company maintains a strong financial position with a current ratio of 3.1 and more cash than debt on its balance sheet. JPMorgan concludes by reiterating its belief in Freshworks’ long-term value, citing the company’s strong position in a substantial market with low penetration as reasons to remain attractive to long-term investors.
In other recent news, Freshworks Inc has been the focus of several analyst evaluations and updates. Piper Sandler increased its price target for Freshworks to $24, citing strong financial performance, including over $400 million in annual recurring revenue for the Experience segment and a positive growth outlook. Cantor Fitzgerald also raised its target to $22, highlighting Freshworks’ strategic moves into the mid-market and enterprise sectors, which now account for over 60% of its annual recurring revenue. Meanwhile, Oppenheimer adjusted its price target to $19, expressing a mixed view with concerns about the Small and Medium Business market but recognizing Freshworks’ potential for growth.
Needham maintained its $25 price target, expressing confidence in Freshworks’ expansion into new sectors like Enterprise Service Management and its strategic initiatives, including a partnership with Unisys (NYSE:UIS). Scotiabank (TSX:BNS) raised its target to $19, noting Freshworks’ 17% organic billings growth and the potential for reaccelerating its Customer Experience segment. Analysts have pointed out that Freshworks’ valuation is appealing compared to competitors, with its enterprise value to sales and free cash flow ratios suggesting room for growth.
Freshworks’ advancements in artificial intelligence, particularly with Freddy AI, continue to be a focus, with management optimistic about its future contributions. The company’s ongoing efforts to enhance its product offerings and expand its market reach are seen as positive indicators by analysts. Overall, these developments reflect a mix of cautious optimism and strategic growth for Freshworks in the current market environment.
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