Freshworks lays off 660 — about 13 percent of its global workforce — despite strong earnings, profits

Despite reporting glowing revenue and profits for its fourth quarter, midmarket customer service, IT, and CRM vendor Freshworks said it was laying off 660 employees — about 13 percent of its employees worldwide. The company said the layoffs were part of “realigning our global workforce.”

The layoff announcement sounded unusual in that it was mentioned within an otherwise glowing financial report. CEO Dennis Woodside said in an analyst call to discuss the earnings that Freshworks “ended the quarter with more than 69,600 total customers with a net add of more than 800 customers.”

Freshworks CFO Tyler Sloat even touted a stock buyback program, to illustrate the company’s strong financials: “Given our strong financial position and improving cash profile, we have the opportunity to expand our capital allocation strategy. As such, our board of directors has authorized a share repurchase program of up to $400 million. This inaugural buyback program not only underscores the confidence we have in the durable and profitable growth of our business, but also reinforces our commitment to delivering long-term shareholder returns.”

The layoffs will cost the company somewhere between $11 million and $13 million for “cash expenditures for severance payments, employee benefits, and related costs” according to a US Securities and Exchange Commission (SEC) form 8-K (which must be filed to reveal major events that shareholders should be aware of) that the company filed on Wednesday.

In a letter to employees on Wednesday, Woodside wrote that the layoffs were needed because “we need to simplify the way we work and operate more efficiently.”

“We began by combining teams focused on customer experience (CX) products, including support, sales and marketing, and reallocating people and investments to prioritize our fastest growing employee experience (EX) business. These decisions were made thoughtfully and carefully to set a strong foundation for our future,” Woodside wrote. “To add more focus on our EX, AI, and CX priorities, we are realigning our global workforce, putting us on a path to have a bigger impact for our customers. We’re making these changes while our business is profitable and our AI-powered products are providing increasing customer value. We believe this will help us accelerate our growth and simplify the way we work, so that we’re running Freshworks in a way that’s efficient and scalable.”

CFO Sloat told analysts during the call that there were multiple objectives for the layoffs. 

“We shifted a number of technical resources in Q3 to further invest in the EX business as part of this strategic review process. To add more focus on our EX, AI, and CX priorities, we are also realigning our global workforce, putting us on a path to have a bigger impact for our customers,” Sloat said. “This includes a difficult decision to reduce our global headcount by approximately 13%. We believe this will help us accelerate our growth, free up resources for reinvestment, and simplify the way we work, so that we are running Freshworks in a way that is efficient and scalable.”

The initial layoffs are hitting Freshworks employees in India and the US. A report in The Hindu Businessline said, “a majority of (Freshworks) employees work in India” and “the decision has impacted around 500 people [in India], which is approximately 12 percent of the India workforce. The decision impacted approximately 16 percent of employees in the US. The evaluation and consultation process is commencing in Europe, Australia and other parts of the world, according to company sources.”

This is significant because tech employees in India are generally paid far less than their US counterparts, with a common ratio being that Indian workers can make as little as one-tenth of the compensation given to US workers. If 500 out of the 660 laid-off workers are based in India, that means that India shouldered about 76 percent of all worldwide layoffs. This would strongly suggest that this layoff was not designed to primarily get rid of higher-compensated individuals so that cheaper workers could replace them.

A spokesperson for Freshworks, Erika Howard, emailed CIO to confirm that some of the layoffs were “eliminating roles where we found overlaps and duplication between teams.” However, Freshworks declined to offer an executive for an interview.

Melody Brue, a VP/principal analyst for Moor Insights & Strategy, said she saw various reasons for the Freshworks layoffs.

“The reality is that a lot of companies did over hire at some point. And there are probably people who aren’t as efficient as they could be,” Brue said, adding that role duplication is also quite likely. 

Brue stressed that AI, which Freshworks has been championing for its customers, quite likely played a key role in the layoffs, and is likely what management envisioned when it referenced efficiencies.

Another factor, Brue said, is what executives meant by “realigning” their workforce. She speculated that some employees, especially those who had been hired many years ago, may not have the skills that their role currently needs. 

“Sometimes, companies can reskill, but they often have to simply rehire,” Brue said. 

Others echoed Brue’s AI suspicions.

Anthony Cintron, CEO of the New York City ad agency DeVito/Verdi, has no doubt that AI played a significant role in the Freshworks layoffs. 

This is “the start of a continued wave of layoffs across industries due to advancements in AI. Many employees who contributed to training AI systems are now seeing their roles diminished as these models become increasingly capable of duplicating work activities at scale,” Cintron said. “As AI continues to drive efficiencies, companies like Freshworks are proactively adjusting their workforce to leverage these technologies, placing a premium on roles that directly enhance customer experience and core strategic goals.”

Cintron pointed to the fact that most of the layoffs are happening in India, “so I am thinking it’s a lot of their 24×7 customer support reps” and they are being replaced by genAI-fueled chat support systems.

“When you think of efficiency, you think of automation,” Cintron said.

Cintron also juxtaposed the strong earnings with the cutbacks. “The timing of these layoffs, coinciding with strong financial performance, suggests a strategic shift rather than a response to financial distress. By streamlining operations and focusing on high-impact areas, Freshworks appears to be positioning itself for sustained growth in a competitive market,” he said. “This approach aligns with broader industry trends where companies optimize their workforce to better align with evolving business objectives and technological advancements.”