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Freshworks Targets Expansion in IT Service Management, Aims to Capture Market Share

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Freshworks, with its innovative approach and customer-centric solutions, is set to disrupt the IT service management market and carve out a significant share for itself, offering businesses a refreshing and efficient way to streamline their operations.

Freshworks, a business software provider, has set a target of reaching $1 billion in total revenue by 2026. The company plans to achieve this goal through expansion in its IT service management (ITSM) business and by moving upmarket. Freshworks primarily serves small and mid-market organizations and operates in a market estimated to be worth $78 billion.

Freshdesk, which provides customer support, and Freshservice, which offers ITSM solutions, are the main revenue drivers for Freshworks. However, the company has experienced a pullback in demand from its small and medium-sized business (SMB) customers. This has led to a downgrade in revenue growth expectations for 2023 and 2024.

Despite the current challenges, Freshworks sees long-term potential in its ITSM business, where it competes against larger rivals like ServiceNow and Atlassian. Freshworks aims to increase the contribution of ITSM to its total annual recurring revenue (ARR) from the current 44% to 60% in three years. The company has been expanding its IT-focused product portfolio and plans to continue growing this segment through various sales strategies.

While customer support remains a larger portion of Freshworks’ business, it faces fierce competition in the market. The company expects customer service ARR to represent 35% of total ARR by 2026, down from the current 51%. To achieve its revenue target, Freshworks is focusing on increasing sales efforts in the mid-market and enterprise segments. The company already serves prominent companies like American Express and Bridgestone and plans to attract more large accounts through product enhancements, including new AI capabilities.

Freshworks’ stock has experienced volatility throughout the year. After hitting a low in May, the stock rebounded but has since fluctuated. As of now, the stock is trading around $17.70 per share, with an enterprise value of 6.8 times the 2023 consensus revenue estimate.

Freshworks will report its Q3 results on October 31, and analysts anticipate growth between 16% and 18% for the quarter. Despite short-term challenges, Freshworks remains optimistic about its long-term prospects in the business software market.

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