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Why Freshworks Stock Plummeted 25.4% in the Last Month of 2021

By Keith Noonan – Jan 6, 2022 at 8:44AM

Key Points

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The software stock has lost more than half its value since the day of its IPO.

What happened

Freshworks (FRSH) stock sank 25.4% last month, according to data from S&P Global Market Intelligence. December was a tough month for many growth-dependent software-as-a-service (SaaS) stocks, and the company's share price wilted amid the pullback. 

FRSH Chart

FRSH data by YCharts

There wasn't much in the way of business-specific news driving the sell-offs, but the software company was coming off a nearly 30% stock slide in November, and there also wasn't any major positive news to shift investor sentiment last month. The company's share price is now down roughly 54% from market close on the day of its September initial public offering (IPO).

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Image source: Getty Images.

So what

Freshworks provides human resources and customer management software, positioning it as a competitor to and other players in the space. The company' stock jumped 21% from its IPO price on its first day of trading, but it's been mostly downhill from there.

Despite posting sales and earnings beats when it reported third-quarter earnings results in November, the stock lost ground following the release due to guidance the market found underwhelming and the business swinging to a free cash flow loss in the period. Freshworks stock also saw a partial lockup expiration early in November, which opened the door for insiders to sell their shares on the market. In conjunction with investors generally shying away from growth-dependent SaaS companies in December, these factors appear to have led to continued sell-offs for the stock.

Now what

Freshworks stock has continued to lose ground early in January's trading. The company's share price is down roughly 11.6% in the month so far. 

ALLK Chart

ALLK data by YCharts

The Federal Reserve appears to be on track to significantly raise interest rates this year and cut back on its bond-purchasing initiatives, and investors are abandoning highly growth-dependent stocks in response. Unsurprisingly, Freshworks stock is getting caught up in the pullback. 

The company will likely publish its fourth-quarter results in February, and management is guiding for a non-GAAP (adjusted) loss per share between $0.05 and $0.07 on revenue between $99 million and $101 million. For the full-year period, the company is targeting an adjusted loss between $0.20 and $0.22 per share on revenue between $365.5 million and $366.5 million. 

Freshworks stock is now valued at roughly $6.7 billion and trades at approximately 14 times expected sales in 2022.

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.

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