Freshworks not so fresh anymore? Firm faces lawsuits in the US for misleading investors

Indian SaaS major Freshworks, now headquartered in California, debuted on NASDAQ in September 2021 to much fanfare. It was valued at over $12 billion after shares opened 21 per cent above the IPO price. More than a year later, the Girish Mathrubootham-led firm is facing a class action lawsuit filed by two US-based law firms - Scott+Scott and The Schall Law Firm. 

Both firms allege that Freshworks offered misleading documents at the time of its IPO, concealing key challenges in its business at the time. “The Company’s net dollar retention rate had plateaued, and both the revenue growth rate and billings were slowing down… Based on these facts, the Company’s public statements were false and materially misleading throughout the IPO period. When the market learned the truth about Freshworks, investors suffered damages,” The Schall Law Firm alleged in its statement. It also charged Freshworks with “violations of the federal securities laws”.

The Scott+Scott statement, meanwhile, said, “As the truth about the Company’s business reached the market, the value of its shares declined dramatically, causing Freshworks investors to suffer significant damages. Indeed, by the commencement of the action, Freshworks’ shares traded as low as $10.51 per share, representing a decline of over 70 per cent from the Offering Price.”

In a statement to Business Today, Freshworks said, "We don't comment on pending litigation and intend to defend this and any similar case vigorously.” 

Incidentally, Freshworks stock (FRSH) has lost 48.3 per cent of its value since the beginning of 2022 in comparison to the S&P 500’s decline of -18.8 per cent, according to Zacks Equity Research. The decline is even steeper compared to its listing price of $43.50.

Shares of Freshworks had opened at $43.50 vis-a-vis its IPO price of $36, indicating strong investor sentiment for SaaS firms. Freshworks competes with global enterprise software giant Salesforce.com, and was among the first India-born start-ups to go public, creating windfall for its early employees and investors. 

“Today is a dream come true for me - from humble beginnings in #Trichy to ringing the bell at@Nasdaq for the Freshworks IPO. Thank you to our employees, customers, partners, and investors for believing in this dream. #Freshworks #IPO #NASDAQ," Freshworks Founder & CEO Girish Mathrubootham had tweeted after the listing. 

FRSH was trading at $12.24, down ~7 per cent at close of market hours on Wednesday. 

Also read: NASDAQ-listed Freshworks prunes Q3 losses, records 37% revenue growth