Freshworks Projects Lower Annual Profit Amid AI Software Concerns

Freshworks Financial Outlook and AI Concerns

By Anhata Rooprai

CEO's Perspective on AI Impact

Feb 10 (Reuters) - Freshworks forecast annual profit below Wall Street estimates on Tuesday, fanning investor concerns around business sustainability amid rapid artificial intelligence service development threatening the software industry.

Revenue and Profit Forecasts

Shares of the company fell over 7% in extended trading.

Market Reaction and Analyst Views

While businesses are adopting AI-driven software from firms such as Freshworks for IT services, workflow automation and customer support improvement, the new sophisticated tools from AI firms promising to do the same could threaten their market.

On January 30, Anthropic introduced plugins for customer support, legal, finance and sales on Claude Cowork, which potentially could disrupt software firms, contributing to a sector-wide selloff.

Analysts, however, have downplayed the risks.

Freshworks forecast adjusted profit per share to be between 55 cents and 57 cents for 2026, below estimates of 69 cents, according to data compiled by LSEG, as the company expects a higher tax rate.

CEO ATTEMPTS TO DISPEL AI CONCERNS

Freshworks CEO Dennis Woodside said customers won't just build everything directly, arguing that creating full enterprise IT and customer-service systems is complex and takes years.

"We've spent a decade to build a system of record and a system of interaction that understands everything about your IT environment," Woodside said in an interview with Reuters.

On concerns that AI could shrink the number of paid software seats, Woodside said Freshworks is still growing its user count. "We're taking share from much bigger incumbents, like ServiceNow and BMC, and Atlassian, and that's how we're growing our business," he said.

Freshworks sells licenses for tools like Freshdesk for customer service and Freshservice for IT support, which are billed per the number of people logging into those services, unlike usage-based pricing used by some AI products.

The company forecast revenue between $952 million and $960 million for 2026, above estimates of $945.3 million.

Fourth-quarter revenue rose 14% to $222.7 million, beating estimates of $218.8 million. Adjusted profit per share of 14 cents also exceeded estimates of 11 cents.

(Reporting by Anhata Rooprai in Bengaluru; Additional reporting by Arsheeya Bajwa; Editing by Vijay Kishore)