Freshworks beat Q1 expectations, but investors are worried about what comes next.
Freshworks (FRSH -19.62%) stock plummeted in Thursday’s trading. The company’s share price closed out the daily session down 19.6%, according to data from S&P Global Market Intelligence.
Freshworks released its first-quarter results after the market closed on Wednesday and actually reported sales and earnings for the period that beat Wall Street’s expectations. Despite the Q1 performance beats, uninspiring forward guidance and downgrades from analysts prompted investors to sell out of the stock today.
Freshworks Q1 beats can’t stave off big sell-offs
Freshworks posted non-GAAP (adjusted) earnings per share (EPS) of $0.10 on revenue of $165.1 million in the first quarter. Meanwhile, the average analyst estimate had called for the business to post adjusted earnings of $0.08 on revenue of $163.5 million. Sales were up 20% year over year in the quarter, but some investors felt that the software company’s customer-service offerings could soon face new pressures.
Following the Q1 report, Oppenheimer analyst Brian Schwartz lowered his rating on the stock from outperform to perform. The analyst also removed his one-year price target of $26 per share for the stock and opted not to introduce a new price target.
Schwartz noted that artificial intelligence (AI) could be a potential disruptor for Freshworks’ business. Along with weaker-than-expected forward-sales guidance, the warning about AI-driven headwinds drove big sell-offs for the stock today.
Mixed forward guidance worries investors
Freshworks is guiding for Q2 earnings to come in between $0.05 per share and $0.06 per share, and it believes that sales for the period will be between $168 million and $170 million. For comparison, the average analyst estimate had called for the business to post per-share earnings of $0.05 per share on sales of $172.1 million.
Looking ahead to the full-year period, Freshworks expects to record per-share earnings between $0.32 and $0.35 on sales between $695 million and $705 million. Meanwhile, the average analyst estimate had called for the business to post earnings of $0.30 per share on sales of $708.3 million. So while the company’s earnings guidance for both Q2 and the full-year period beat Wall Street’s target, its sales guidance proved to be underwhelming.
Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
