What happened
Shares of Freshworks (FRSH 0.22%) fell 15.8% in February, according to data from S&P Global Market Intelligence. The enterprise software company's stock lost ground following its fourth-quarter earnings release.
Freshworks published its fourth-quarter results on Feb. 10, delivering sales that topped the market's expectations and earnings that were in line with analyst targets. The customer-relationship-management (CRM) software company posted a non-GAAP (adjusted) loss per share of $0.06 on revenue of $105.5 million. Meanwhile, the average analyst estimate had called for revenue of $95.34 million in the period.
So what
Freshworks' revenue climbed 44.5% year over year in the fourth quarter, and the business posted a net-dollar-based retention rate of 114%, which means that existing customers increased their spending 14% compared to the prior-year period on average. For the full year, revenue was up 49% and reached $371 million.
The company even delivered better-than-expected guidance with its fourth-quarter report, but it still wasn't enough to prevent a double-digit sell-off as investors moved out of growth-dependent software companies last month.
Image source: Getty Images.
Now what
Freshworks stock has continued to fall in March. The company's share price is now down 7.1% in the month so far.
FRSH data by YCharts.
For the current quarter, Freshworks' midpoint guidance calls for revenue of $108 million, a figure that came in significantly ahead of the $106.5 million average target from analysts prior to the company's fourth-quarter report. Management's midpoint target for the current fiscal year calls for sales of $490.7 million, which was also ahead of the previous average target from analysts.
Following recent sell-offs, Freshworks now has a market capitalization or roughly $4.7 billion and is valued at approximately 9.6 times this year's expected sales. That's still a growth-dependent valuation, and the stock could see more turbulence in the near term if investors continue to move out of unprofitable companies that trade at relatively high price-to-sales multiples.
Freshworks completed its initial public offering last September and now trades down roughly 64% from market close on the day of its public debut. For long-term investors who see promise in the company's CRM software, the big pullback might have created a worthwhile buying opportunity, but it's probably best to move forward with the understanding that trading could be rocky in the near term.
