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Why Freshworks Stock Plummeted 29.9% in November

What happened

Shares of Freshworks (NASDAQ: FRSH) sank 29.9% in November, according to data from S&P Global Market Intelligence.

The software-as-a-service (SaaS) stock lost ground after the company reported its first-quarter results, and it continued to move lower as the month progressed:

FRSH data by YCharts.

Freshworks published its Q1 results on Nov. 2, posting sales and earnings for the period that came in ahead of the market's expectations. The company posted a non-GAAP (adjusted) loss of $0.04 on revenue of $96.61 million in the period, while the average analyst estimate had called for a $0.10 per share loss on sales of $90.85 million. The enterprise software specialist delivered top- and bottom-line beats, but performance was less inspiring along other key fronts.

Image source: Getty Images.

So what

Freshworks sales rose 46% year over year in Q3. The company's net-dollar-based retention rate for the period came in at 117%, which means that existing clients increased their spending 17% compared to the prior-year period. Despite recording sales and earnings that topped the market's expectations, the company saw its free cash flow slip to a $4.2 million loss in the period -- swinging from positive free cash flow of $10.3 million in the prior-year period.

Freshworks also had a partial stock lockup expiration on Nov. 4, freeing insiders to sell some of their shares; that lockup expiration may have created some extra selling pressure that helped send the company's share price lower as the month progressed. In the meantime, investors weighed risks presented by rising Treasury bond yields and the omicron coronavirus variant, and became more cautious about growth-dependent tech plays.

Now what

Freshworks stock has continued to slide early in December's trading. The company's share price is now down roughly 19% in the month so far:

FRSH data by YCharts.

For the fourth quarter, the company is guiding for sales to be between $99 million and $101 million. Management is targeting an adjusted loss between $0.05 and $0.07 for the period.

For the full year, Freshworks expects an adjusted loss per share between $0.20 and $0.22 on sales between $364.5 million and $366.5 million. The company now has a market capitalization of roughly $4.9 billion, and trades at roughly 13.4 times the midpoint of this year's expected sales.

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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.


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