Freshworks ( NASDAQ: FRSH ) shares fell almost 2% in premarket trading on Wednesday as investment firm Wolfe Research downgraded the marketing and sales software company, citing worries over slowing growth and the weakening global economy.
Analyst Alex Zukin lowered his rating on Freshworks ( FRSH ) shares to peer perform from outperform, noting that is a "good product in a great market" and has a number of ways to grow, but it is not immune to a global slowdown. He added that the company has seen "material" pressure in 2022 due to foreign exchange headwinds, as 55% of its revenue is international.
The company has also experienced elongating deal cycles, with roughly 40% of revenue coming from Europe, as well as elevated churn, execution issues. Coupled with little to no free cash flow, and Zukin is negative on Freshworks ( FRSH ) in this environment.
"While FRSH installed a new [Chief Revenue Officer] in recent months (which we view as a positive), we believe the deteriorating macro environment will continue to drive worsening retention trends, decelerating billings growth, and revenue growth into the high-teens in [fiscal 2023 and 2024]," Zukin wrote in a note to clients.
On the contrary, Zukin noted that Freshworks ( FRSH ) is likely to benefit when the downturn ends thanks to its modernized platform to help drive new logo wins across buying centers and its "attractive" cross-selling opportunities. There's also potential for many of its customers to increase their spending, as 43% of annual recurring revenue went to customers spending $50,000 or more in the third-quarter.
Last month, Freshworks ( FRSH ) reported mixed third-quarter results, but investors reacted positively thanks to the top-line strength .
Analysts are mixed on Freshworks ( FRSH ). It has a HOLD rating from Seeking Alpha authors , while Wall Street analysts rate it a BUY . Conversely, Seeking Alpha's quant system, which consistently beats the market, rates FRSH a STRONG BUY .
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Freshworks slips as Wolfe Research downgrades on worries over slowing growth, economy