News
The Gist
- IT pivot? Freshworks buys IT management firm Device42 for $230 million, signaling a strategic shift toward backend applications.
- New CEO at the helm. Dennis Woodside takes over as CEO of Freshworks, succeeding founder Girish Mathrubootham who moves to executive chairman.
- What the money says. Freshworks shares financial growth following acquisition news and revised revenue forecasts, amidst market skepticism.
Freshworks, which provides customer experience and digital workplace software, started May with a $230 million acquisition and a new CEO.
The company acquired IT asset management company Device42 for $230 million. Device42 specializes on the IT side of the enterprise, offering discovery, asset management and dependency mapping for data centers and the cloud.
In addition, the San Mateo, California, company announced a “CEO transition,” by appointing Dennis Woodside as the new CEO and president, succeeding Girish Mathrubootham (in featured picture), the company’s founder who started Freshworks in 2010. Mathrubootham will transition to a new role of executive chairman and will remain the chairman of the board of directors; Woodside will also remain a member of the board of directors.
Major IT-Based Acquisition
IT is not a new play for Freshworks, but Freshworks is making a big splash here in the arena of IT/backend applications. Some previous Freshworks acquisitions supported customer service and support:
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Frilp, a social recommendation application: 2015
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Chatimity, an AI social chat application: 2016
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Joe Hukum, an automated chat solution: 2017
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Natero, a customer success platform: 2019
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AnsweriQ, a self-service AI and agent AI platform: 2020
What does this acquisition say about Freshworks’ direction? Freshworks offers CRM software among other CX software suites. Like many, it wants to disrupt the CRM Queen, Salesforce.
Freshworks officials say the acquisition of Device42, an 800-customer IT company, will further strengthen Freshworks’ IT solutions for mid-market and enterprise companies. It may also mean the company could be pivoting to a backend focus vs. customer service and support and customer experience. Expanding into IT and backend solutions may allow Freshworks to better compete with larger enterprise software providers who offer a full suite of services from front-end customer engagement to backend operations management.
Related Article: Freshworks Unveils AI-Powered Customer Service Suite with Freddy Generative AI Integration
Market Reacts: Shares Drop Considerably for Freshworks
The news didn’t hit the market with great response. Freshworks shares dropped nearly 30% in premarket trading on Thursday, May 2. Freshworks projected yearly revenue in the $695 million to $705 million range, dropping from its previous forecast of $703.5 million to $711.5 million, according to Reuters. Freshworks in its 2021 IPO was valued at $10 billion but today is looking at about $4 billion.
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Some didn’t agree so much with the market’s reaction:
Dennis Woodside is an exceptional leader - saw him up close in Google.
— Amitabh Verma (@amitabh26) May 2, 2024
Markets are over reacting .
Perhaps a good time to buy Freshworks https://t.co/97u7z1FJQI
Freshworks predictably painted a rosy financial picture and touted its artificial intelligence innovations in its May 1 earnings call for its first quarter results. Freshworks last year doubled down on AI for its customer service suite, which it said brings together self-service bots, agent-led conversational messaging and automated ticketing management in an all-in-one solution.
“Freshworks delivered 20% revenue growth with improving profitability and a strong free cash flow margin in Q1,” Mathrubootham said in a release. “I’m particularly proud of the progress we’ve made in AI innovation across our products, and its tangible impact on our customers. We remain more focused than ever on product innovation, bringing more large customers onto our platform, and expanding adoption of products across our portfolio.”
Freshworks reported total revenue was $165.1 million, representing growth of 20% compared to the first quarter of 2023, and 19% adjusting for constant currency.
Freshworks Focusing on 'Long-Term Product Vision and AI'
In a May 1 blog post, Mathrubootham expressed a mix of emotions reflecting on the company's journey and growth and highlighted succession planning and Woodside's qualifications.
The founder is optimistic about the future, planning to focus on long-term product vision and AI. He expresses gratitude to the company's employees for their contributions and encourages them to support the new leadership as they continue to drive the company forward.
“As I pass the baton to Dennis and move into my new seat as Executive Chairman, I look forward to continuing to serve Freshworks, focusing on our long-term product vision and AI, spending more time with our teams in India, and being a trusted advisor to Dennis. Our mission remains unchanged, and our future is bright,” the former CEO wrote. “The road ahead is filled with limitless possibilities, and I am excited to see where Dennis' leadership takes us.”
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