Business software provider Freshworks (NASDAQ: FRSH) met Wall Street’s revenue expectations in Q3 2026, with sales up 14.1% year on year to $245.4 million. The company expects next quarter’s revenue to be around $254 million, close to analysts’ estimates. Its non-GAAP profit of $0.22 per share was 21.6% above analysts’ consensus estimates.

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StockStory’s take

Freshworks reported a quarter in which results aligned with Wall Street’s revenue expectations, but the market responded negatively, reflecting a cautious sentiment. Management highlighted upmarket expansion and accelerated adoption of multi-product deals as the primary drivers. CEO Dennis Woodside noted, “Our emphasis for us has absolutely been on moving upmarket. That’s where the demand is.” The company also credited its focus on artificial intelligence (AI) capabilities and a unified service platform for winning large customers and driving operational efficiency. Structural changes, including a shift of customer experience (CX) go-to-market operations to India, contributed to improved margins, while growth in smaller customer cohorts was less pronounced than in previous periods.

Looking ahead, Freshworks’ outlook is anchored in expanding its enterprise-focused offerings, further integration of AI, and broadening its product suite for existing customers. Management believes the main levers for future growth will be increased expansion within its current customer base, particularly through upselling new cloud-based IT asset management (ITAM) and IT operations management (ITOM) solutions. CFO Tyler Sloat emphasized that, “As customers are buying [new products] as they land, the attributes look really, really good, and they’re seeing the value.” The company will also focus on executing recent go-to-market realignments and integrating acquisitions, while monitoring longer sales cycles and the timing of product migrations from on-premise to the cloud.

Key insights from management’s remarks

Management pointed to upmarket momentum, adoption of AI-powered features, and operational restructuring as key contributors to the quarter’s performance.

• Upmarket shift accelerates: Management prioritized larger enterprise customers, resulting in 26% growth in accounts over $100,000 in annual recurring revenue (ARR). The company’s focus on “agile enterprise” clients led to its second seven-figure deal this year and a record number of new large customer additions.
• AI drives platform differentiation: The deployment of domain-specific AI, including the Freddy Copilot and AI Agent, was cited as a major differentiator. These tools boosted customer expansion rates, with EX customers purchasing AI achieving net dollar retention rates above 115%. AI features also enabled teams to handle significantly higher ticket volumes and deflect inquiries.
• Multi-product strategy gains traction: Freshworks saw rapid adoption of its newly launched cloud ITAM product and increased cross-sell activity, particularly among larger customers. The company added over 400 new cloud ITAM customers since launch, and two-thirds of top new deals included IT asset management components.
• Operational restructuring boosts margins: The reorganization of go-to-market teams—shifting all CX efforts to India and concentrating field teams on the EX business—improved profitability and allowed for more focused sales and support. This contributed to higher non-GAAP operating margins and disciplined expense control.
• Partner ecosystem scales up: Partnerships played a growing role, with 44% of EX bookings and 53% of new business involving partners. Several key partners, such as CDW and Softchoice, doubled their business with Freshworks, supporting the company’s move into more sophisticated enterprise environments.

Drivers of future performance

Freshworks expects future performance to hinge on expansion within its installed base, further integration of acquired products, and continued investment in AI-driven capabilities.

• Customer expansion focus: Management is shifting emphasis from landing new business to expanding within its existing customer base, which it believes holds “hundreds of millions” in potential ARR. With 70% of customers using only one EX product, the company sees significant opportunity to upsell new ITAM and ITOM solutions as integration with acquired platforms deepens.
• AI and product innovation: The company will continue to invest in AI and automation, anticipating that new capabilities like Freddy AI Agent Studio and enhanced integrations will drive higher customer engagement and efficiency. Management expects these innovations to further differentiate Freshworks in competitive enterprise and mid-market segments.
• Sales cycle and migration risks: As Freshworks moves upmarket, it is encountering longer, more complex sales cycles, which may impact deal timing. Additionally, the transition from on-premise to cloud-based products, while strategically important, introduces some short-term revenue headwinds as perpetual licensing shifts toward recurring models.

Catalysts in upcoming quarters

Looking forward, the StockStory team will be closely monitoring (1) the pace of expansion and upsell into Freshworks’ existing enterprise customer base, (2) successful integration and monetization of newly acquired AI and IT operations products, and (3) the impact of longer sales cycles as the company targets larger deals. Execution on cloud migration initiatives and sustained partner-driven growth will also be key indicators of progress.

Freshworks currently trades at $13.42, down from $14.15 just before the earnings. Is the company at an inflection point that warrants a buy or sell? The answer lies in our full research report (it’s free).

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