Don’t you have curiosity, vision, imagination to deploy $400 million: Zoho’s Vembu on Freshworks layoffs

Zoho founder Sridhar Vembu has criticised Freshworks in a post on X for laying off 10-12% of employees even as it goes for a $400 million share buyback. In a pointed comment, Vembu questioned the company's decision to prioritise shareholder returns despite holding over a billion dollars in reserves, suggesting it could impact employee loyalty.

“A company that has $1 billion cash, which is about 1.5 times its annual revenue, and is actually still growing at a decent 20% rate and making a cash profit, laying off 12-13% of its workforce should not expect any loyalty from its employees ever. And to add insult to injury, when it can afford $400 million in a stock buyback,” Vembu said in a November 8 post on X.

"I can understand the unfortunate reality of layoffs when a business is struggling or declining and making a loss. This is not that situation, this is naked greed, nothing less," Vembu added.

Without naming Freshworks directly, Vembu issued this sharp critique a day after the company’s earnings report and layoff announcement, which pushed the company’s stock up 28% in US markets. In his post on X, Vembu questioned the Nasdaq-listed firm’s approach, asking if it lacked "the vision and imagination" to invest the buyback funds in new business lines that could retain displaced employees.

Freshworks on November 7 announced a 13% reduction in its workforce, impacting approximately 660 employees across the US, India, Germany, France, the UK, and the UAE. This move is part of the company's efforts to streamline operations and improve efficiency.

CEO Dennis Woodside, who took over in May, confirmed the restructuring plan. Separation payments, benefits, and related costs are expected to incur charges of $11 million to $13 million in Q4 2024.

With over 5,000 employees, Freshworks has already carried out several rounds of layoffs and management changes this year. Under Woodside’s leadership, the focus has shifted to three key areas: employee experience, AI, and customer experience. This strategy has led to team consolidations and resource reallocations to accelerate growth in the employee experience segment.

The restructuring is expected to be completed by the end of 2024.

Zoho and Freshworks share a complicated history. Freshworks founder Girish Mathrubootham, who previously worked at Zoho, started his own company in 2010. The companies have been in conflict since March 2020, when Zoho sued Freshworks for allegedly stealing confidential information. The dispute was settled in 2021, with Freshworks acknowledging that a former employee had wrongfully accessed and used Zoho's confidential sales lead data.

For Q3 ending September, Freshworks reported a 7.16% increase in revenue to $186.57 million from $174.1 million in the previous quarter, though net losses rose by 49% to $29.96 million from $20.1 million. Year-over-year, revenue grew by 21.5% from $153.5 million, while net losses declined slightly by 3.4% from $31 million. Freshworks projects Q4 revenue between $187.8 million and $190.8 million, indicating 17% to 19% annual growth.

Freshworks' share price rose 28% after strong Q3 results and the announcement of a $400 million share buyback program. The board authorised the repurchase of Class A common stock, though no timeline was provided.