Needham reiterates Buy on Freshworks stock, sees path to "Rule of 45

Investing.com - Needham has reiterated its Buy rating and $25.00 price target on Freshworks Inc (NASDAQ:FRSH) following the company’s Analyst Day. According to InvestingPro data, this target represents significant upside potential, with analyst targets ranging from $16 to $27, while the company maintains impressive gross profit margins of 84.6%.

The firm highlighted Freshworks’ new FY28 financial model, which features modestly accelerating organic revenue growth and increased free cash flow leverage targeting a "Rule of 45" framework.

Needham expressed confidence in Freshworks’ margin leverage targets but identified potential risks to the company’s $1.3 billion Annual Recurring Revenue (ARR) goal, particularly in maintaining 20% growth in the EX segment and driving ITAM ARR beyond $100 million.

Management pointed to increasing deal sizes, more competitive products including integration with Device42, and new partner strategies as growth drivers that could help overcome these challenges.

The research firm views Freshworks’ targets for Customer Experience (CX), Enterprise Service Management (ESM), and AI segments as "relatively achievable" based on current CX growth levels and what it perceives as high demand for ESM and AI modules.

In other recent news, Freshworks Inc . reported its second-quarter results, showcasing a strong performance with notable growth in its Employee Experience (EX) and Customer Experience (CX) segments. Cantor Fitzgerald highlighted Freshworks’ "solid beat and raise" performance, with the EX business growing 22% year-over-year and CX growth accelerating to 8% in constant currency. Needham also noted the company’s better-than-expected billings, with CX segment’s Annual Recurring Revenue (ARR) growth rate increasing to 11% in the second quarter. Piper Sandler raised its price target for Freshworks to $25, citing the company’s success in exceeding the Rule of 40, driven by a 27% free cash flow margin in Q2. JMP Securities reiterated a Market Outperform rating with a $27 price target following Freshworks’ Investor Day. Oppenheimer also maintained an Outperform rating with a $19 target after hosting the company’s CFO at a conference discussing market opportunities and AI momentum. Cantor Fitzgerald and Needham both reiterated their positive outlooks with Overweight and Buy ratings, respectively, emphasizing Freshworks’ growth potential in AI and competitive positioning.

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