Investing.com -- Wells Fargo initiated coverage of Freshworks and Klaviyo (NYSE:KVYO) in a note Wednesday, assigning both companies an Equal Weight rating, reflecting a cautious stance amid competitive landscapes and macroeconomic headwinds.
In its analysis of Freshworks, Wells Fargo highlights the company's shift from a small-to-medium business (SMB) focus to targeting the mid-market IT service management (ITSM) segment.
"We view Freshworks as targeting a sizeable $75Bn TAM across its 3 key businesses," the bank states, citing the company's growth potential in ITSM and efficiency in research and development.
"With a shift of focus to ITSM (from Customer Support & CRM), we believe FRSH is targeting the market that is seeing the fastest growth," they add.
However, the analysts warn that Freshworks faces challenges, including "ongoing macro and SMB headwinds" and decelerating growth.
With competitive pressures from larger vendors and uncertainties in customer support and ITSM segments, Wells Fargo sets a price target of $11 for Freshworks, noting, "We're balanced at current levels."
For Klaviyo, Wells Fargo recognizes the company as a leader in the marketing automation market for eCommerce and retail, with exposure to a $50 billion market.
Klaviyo's real-time omni-channel capabilities and consistent revenue growth of over 35% each quarter underscore its strong position, according to Wells Fargo.
However, they believe Klaviyo's heavy reliance on SMBs (70%) and eCommerce/retail verticals (95%) raises concerns, especially as these segments remain vulnerable to macroeconomic headwinds and fluctuating consumer sentiment.
Wells Fargo suggests the company's efforts to diversify may take time, with potential risks in expanding into new verticals and moving up-market. The analysts assign a $37 price target for Klaviyo, citing the need for cautious optimism.
Despite both companies offering differentiated solutions, Wells Fargo highlights the competitive nature of their respective markets and ongoing economic uncertainties.
The firm concludes that while Freshworks and Klaviyo are well-positioned, the current risks justify an Equal Weight rating for both stocks.