What happened
Shares of software-as-a-service specialist Freshworks (FRSH +0.40%) cratered on Wednesday, falling 15.9% through 10 a.m. EDT despite the company reporting what was technically an "earnings beat" last night.
Analysts had forecast that the company, which provides help-desk services to small and medium-sized businesses, would book $90.8 million in sales and lose $0.10 per share in the third quarter. In fact, Freshworks booked sales of $96.6 million and lost only $0.04 per share.
Image source: Getty Images.
So what
Nevertheless, a loss is still a loss -- and when calculated according to generally accepted accounting principles (GAAP) rather than the adjusted numbers highlighted above, Freshworks had a big loss in Q3. GAAP losses for the quarter were $24.72 per share, or more than half the stock's share price today, despite sales growing 46% year over year.
And the company burned through $4.2 million in negative free cash flow versus generating more than $10 million in cash in the year-ago quarter.
Now what
The good news, of course, is that Freshworks is growing, and may one day grow itself out of those losses. After all, sales were up a sizable amount, and the number of customers paying Freshworks more than $5,000 a year in revenue increased 31% in Q3.
Looking ahead, management forecasts about $100 million in revenue for the fourth quarter currently underway, with adjusted losses rising a bit to a range of $0.05 to $0.07 per share. For the year, the company is looking at probably $365.5 million in sales and adjusted losses of about $0.21 per share.
On balance, those numbers look better than what Wall Street is forecasting, indicating the company is cruising toward another earnings beat in Q4. But then again, beating earnings expectations didn't help Freshworks much in Q3.
