Freshworks beats Q4 estimates but growth deceleration looms
Cloud software company forecasts slower 13.5-14.5% revenue growth for 2026 after strong 16% expansion in 2025
Freshworks Inc. shares rose modestly on Tuesday after the cloud-based customer engagement software provider reported better-than-expected fourth-quarter results, though investors focused on the company's forecast for decelerating growth in fiscal year 2026.
The San Mateo, California-based company reported revenue of $222.7 million for the fourth quarter ended December 31, 2025, marking a 14% increase year-over-year and exceeding analyst expectations of approximately $219 million. Non-GAAP earnings per share of $0.14 topped Wall Street estimates of $0.11 by 9.8%, according to financial reports.
For the full fiscal year 2025, Freshworks achieved revenue growth of 16% year-over-year, totaling $838.8 million. The company's employee experience (EX) business surpassed $500 million in annual recurring revenue (ARR), while enterprise service management (ESM) and Device42 each recorded more than $40 million in ARR. Freshworks' Freddy AI artificial intelligence offering exceeded $25 million in ARR during the fourth quarter.
Despite the strong quarterly performance, Freshworks' guidance for fiscal year 2026 projects revenue between $952 million and $960 million, representing year-over-year growth of just 13.5% to 14.5%. This marks a notable deceleration from the 16% growth achieved in 2025 and represents the first slowdown in the company's expansion trajectory since its initial public offering.
The company also issued first-quarter 2026 guidance for revenue of $222 million to $225 million, indicating growth of 13% to 15% from the prior year, with non-GAAP EPS expected between $0.10 and $0.12.
Freshworks, which delivered its fifth consecutive quarter of beating its own revenue and non-GAAP operating margin guidance, maintained an 18.7% non-GAAP operating margin in the fourth quarter. The company's operating cash flow margin for fiscal 2025 reached 28%, according to company disclosures.
Analysts have largely maintained positive ratings on Freshworks despite the growth slowdown concerns. The stock currently carries an average analyst target price of $17.64, representing significant upside from current levels, with 10 analysts rating the shares a buy or strong buy and six recommending hold, according to market data.
Freshworks shares, which have declined sharply from their 52-week high of $18.77 to trade near the year's lows, closed Tuesday up 1.2% at $8.73. The stock is down significantly over the past year as investor enthusiasm for growth-oriented software companies has cooled amid concerns about valuations and decelerating growth rates across the sector.
The company's guidance for slower growth in 2026 reflects broader challenges facing software-as-a-service providers as they lap pandemic-era expansion cycles and face tougher comparisons in an increasingly competitive landscape. Freshworks faces competition from larger players including Salesforce, Microsoft, and Zendesk in both customer engagement and IT service management markets.
Investors will be watching closely whether Freshworks can maintain its operating margins and continue driving adoption of its AI-powered products to offset the decelerating top-line growth. The company's ability to expand within its existing customer base and drive enterprise adoption of its Freddy AI platform will be key factors in determining whether it can regain the strong growth momentum that characterized its early years as a public company.