Freshworks Pivots to EX Growth, Raises 2028 Revenue Target Above $1.3B

Key Points

• Freshworks is shifting its strategy toward employee experience (EX), with CEO Dennis Woodside calling it an “EX-first company.” EX is expected to make up 60% of annual recurring revenue by year-end and 70% by 2028, led by Freshservice.
• The company raised its 2028 revenue target to more than $1.3 billion, up from more than $1.2 billion, while also boosting margin goals and targeting a “rule of 50” profile with roughly 34% free cash flow margins.
• AI and larger customers are driving growth, with Freshworks highlighting strong adoption of Freddy AI tools, 118% net dollar retention among AI-using EX customers, and growing traction with mid-market and enterprise clients.

Freshworks NASDAQ: FRSH told investors at its Refresh event that it is repositioning the company around its employee experience, or EX, business, with executives saying the company’s growth story is increasingly tied to Freshservice rather than its legacy customer experience products.

CEO and President Dennis Woodside said Freshworks is now an “EX-first company,” adding that some investors and analysts still view the company as centered on customer experience and small businesses. “That’s just not accurate anymore,” Woodside said.

Woodside said EX represented 37% of Freshworks’ business when the company went public, but is expected to be 60% of annual recurring revenue by the end of this year and 70% by the end of 2028. He said Freshservice is on a path to $1 billion in ARR in about two and a half years, with the company expecting to end 2026 at $600 million in ARR for the product.

Freshworks Highlights Enterprise and Mid-Market Momentum

Woodside said Freshworks is seeing traction with larger customers, particularly in what the company calls “agile enterprises,” which it defines as organizations with up to 20,000 employees. He said 80% of EX ARR comes from mid-market and enterprise customers, with mid-market defined as companies with 251 or more employees and enterprise defined as 5,000 or more employees.

The company said its EX business has grown fivefold over the past five years and now serves 20,000 customers globally. Woodside cited customers including Seagate, New Balance, Databricks, Smartsheet, RingCentral, Nucor Steel, Steel Dynamics and Vermeer, and said Freshservice is used by one-third of Major League Baseball teams and one-third of Formula One teams.

Freshworks said customers spending more than $100,000 annually account for more than 40% of the Freshservice business, and that this customer group grew 40% year over year in the first quarter. The company also said average revenue per account for EX grew 18% year over year.

AI Positioned as Growth Driver

Woodside said artificial intelligence is acting as both a direct and indirect tailwind for the business. Freshworks announced several AI-related updates at the event, including AI Agent Studio for EX, an MCP gateway, cloud-native IT asset management, IT operations management integration following the FireHydrant acquisition, and new experience-level agreement and executive overview capabilities.

The company said Freddy Copilot is priced as a $29-per-month add-on to Pro and Enterprise plans. Freshworks also said AI Agent Studio and the MCP gateway will be available to customers at no charge for a promotional period, with monetization expected to begin in October. Woodside said AI Agent sessions are expected to be priced at $0.49 per session beginning in October, while MCP gateway pricing will be determined after the company observes customer usage.

Woodside said agents using Freddy Copilot can address 50% more tickets than those who do not. He also said Freshworks saw an average 50% deflection rate with Freddy AI Agent in the first quarter, with some customers reaching as high as 80%. Freshworks said EX customers using AI had net dollar retention of 118% last quarter.

Updated 2028 Targets

CFO Tyler Sloat said Freshworks is raising its 2028 outlook based on stronger confidence in EX growth, a more focused go-to-market strategy and additional opportunities from IT asset management, IT operations management and enterprise service management.

Sloat said Freshworks now expects 2028 revenue of more than $1.3 billion, up from the prior target of more than $1.2 billion. The company also raised its operating margin and free cash flow margin targets by 400 basis points from the targets provided at its September investor day.

Sloat said Freshworks is targeting a “rule of 50” profile by 2028, with roughly 34% free cash flow margins. He also said the company expects adjusted free cash flow per share of $1.35 by 2028 and plans to grow free cash flow per share by 20% annually going forward.

The company reiterated that its guidance for the current year remains unchanged from the update provided the prior week, when it raised revenue guidance by $5 million, operating profit guidance by $26 million and free cash flow guidance by $15 million after the first quarter.

Capital Efficiency and CX Strategy

Sloat said Freshworks has reduced fully diluted shares by almost 10% from 2024 to 2026 and currently has $700 million in cash with no debt. He said the company is actively using its second buyback authorization and has been net settling restricted stock units since going public.

Freshworks also lowered its stock-based compensation target, saying it now expects SBC to be 13% to 14% of revenue by 2028, compared with a prior long-term model of 18% to 20%. Sloat said SBC is expected to decline from 30% of revenue in 2024 to an estimated 16% this year.

While Freshworks emphasized EX as its primary growth engine, executives said the company remains committed to its customer experience business. Woodside said many large customers use both CX and EX products, and that shared infrastructure provides leverage across the company. Sloat said CX will be focused on inbound demand and is expected to grow in the low single digits while producing cash.

Analyst Questions Focus on Growth, AI and Market Position

During the question-and-answer session, Sloat said the company’s EX growth targets do not assume future acquisitions. He said AI will become a larger factor in why customers choose Freshworks, but the company is focused on overall ARR and margins rather than separately emphasizing AI ARR.

Woodside said Freshworks is not relying on an overall increase in IT spending to support growth. Instead, he said the company is taking share from incumbent providers, particularly among organizations that need enterprise-grade capabilities without what he described as enterprise complexity.

“It’s not that we need overall IT spend to go up,” Woodside said. “We’re taking share from others that are not serving that space well.”

About Freshworks NASDAQ: FRSH

Freshworks, Inc is a global provider of cloud-based customer engagement software designed to help businesses streamline customer support, sales, marketing, and IT service operations. The company's integrated suite of solutions enables organizations of all sizes to deliver seamless experiences across multiple channels, including email, chat, phone, and social media. Freshworks' platform is built on modern, user-friendly interfaces and offers native automation, AI-powered insights, and analytics to improve efficiency and customer satisfaction.

The company's flagship product, Freshdesk, serves as a helpdesk solution for customer support teams, while Freshservice addresses IT service management needs.

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