Scotiabank raises Freshworks stock target to $19, maintains rating

On Wednesday, Scotiabank (TSX:BNS) analyst Nick Altmann updated the price target for Freshworks Inc (NASDAQ:FRSH) to $19.00, an increase from the previous target of $17.00, while keeping a Sector Perform rating on the stock. According to InvestingPro analysis, Freshworks currently appears undervalued, with the company maintaining a "Good" overall financial health score. The company’s market capitalization stands at $5.4 billion.

Altmann’s decision came after evaluating Freshworks’ financial outlook for FY25, which he found modestly surpasses the consensus. The company’s impressive 20.45% revenue growth and remarkable gross profit margin of 83.84% support this positive outlook. The company’s 17% organic billings growth for the quarter is seen as a supportive factor for investors looking for potential growth beyond the initial projections. Freshworks’ Enterprise ARR (EX ARR) experienced a 22% organic growth, slightly lower than the 30% seen in the previous quarter. Customer Experience ARR (CX ARR) grew by 6%, a dip from around 10% in the last quarter.

Despite the slowdown, Freshworks aims to reaccelerate its CX segment in CY25, which could serve as a positive catalyst, especially considering the industry’s concerns regarding General AI’s potential disruption to the customer service market. Notably, Freshworks has expanded its partnership with Klarna, which could be seen as a counter to these fears.

Freddy AI, Freshworks’ artificial intelligence offering, remains a highlight for the company. Freddy Copilot ended the fourth quarter with 2,200 customers, while Freddy AI agent had 1,300 customers. Management did not provide specific figures for Freddy Copilot’s financial contribution but indicated that it is exceeding internal expectations and anticipates significant monetization advancements in CY25.

Altmann suggested that the deceleration in the EX segment is an area to watch, but he also noted that given the stock’s valuation at under 20 times free cash flow, the fourth quarter results and outlook are robust. The new price target of $19 is based on approximately 20 times the estimated EV/CY26E free cash flow. For a deeper understanding of Freshworks’ valuation and growth prospects, InvestingPro subscribers can access the comprehensive Pro Research Report, which includes detailed financial analysis and 8 additional ProTips about the company’s performance and potential.

In other recent news, Freshworks Inc. has been the focus of multiple analyst upgrades following a strong fourth quarter. Oppenheimer lifted its stock target to $24, highlighting the company’s robust performance in various areas, including billings, annual recurring revenue, and margin growth. Canaccord Genuity raised its target to $23, maintaining a Buy rating and pointing out Freshworks’ efficient operating leverage and the potential for this trend to continue. Morgan Stanley (NYSE:MS) increased the price target to $21, noting Freshworks’ strong fourth quarter and positive outlook for fiscal year 2025. JMP Securities set the highest target at $27, following better-than-expected results bolstered by both organic growth and the strategic acquisition of Device 42.

These recent developments reflect Freshworks’ strong fourth-quarter performance, which exceeded analyst expectations. The company reported non-GAAP earnings per share of $0.14, surpassing the consensus estimate of $0.10. Revenue for the quarter came in at $195 million, also exceeding the forecasted $190 million, marking a year-over-year increase of 22%. The company’s billings for the quarter stood at $222 million, surpassing the consensus of $211 million and representing a 23% increase from the same period last year.

Freshworks also provided optimistic guidance for 2025, projecting revenue between $809 million and $821 million. The company’s strong performance was driven by continued customer adoption of its solutions, with 22,558 customers contributing more than $5,000 in annual recurring revenue, up 11% YoY. Despite these positive developments, some areas of concern, such as the underperformance of the customer experience business and unimpressive billings guidance, were also noted.

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