Freshworks Inc. (FRSH) Misled Investors Regarding its Business Prospects
A shareholder filed a class action against Freshworks Inc. (NASDAQ: FRSH) in connection with the Company’s initial public offering (“IPO”) pursuant to the Securities Act of 1933.
According to the complaint, on or about September 22, 2021 Freshworks conducted its IPO, offering 28.5 million shares of its common stock to the investing public at a price of $36 per share.
According to the Offering Documents, Freshworks’ business had “grown rapidly” in the lead up to the IPO, with the Company observing “broad appeal of [its] products to customers of all sizes and geographies.” As a result, the Company’s growth rates and purportedly “healthy” net dollar retention rates, reflecting the usage of its products from existing customers and the sale of additional products to these customers, reached levels not previously achieved, and there was no indication that either was decelerating. The Offering Documents, however, were false and misleading and omitted to state that, at the time of the IPO, Freshworks’ net dollar retention rate had plateaued while its revenue growth rate and billings were, in fact, decelerating.
Freshworks’ stock declined after the Company announced its fourth fiscal quarter of 2021 earnings on February 10, 2022, during which it reported flat calculated billings growth (of 41% when normalized for early renewals and reserve activity) and revenue growth deceleration (of only 44% year over year). On this news, Freshworks’ stock dropped 18%, closing on February 11, 2022 at $18.41 per share. Then, on May 3, 2022, after the market closed, Freshworks reported its first quarter 2022 financial results, reporting a third quarter of decelerating revenue growth and billings that missed consensus estimates and declined 13% quarter over quarter. On May 5, 2022, Freshworks closed at $15.99 per share, down approximately 5.72% over two days. By the commencement of the class action, Freshworks’ shares traded as low as $10.51 per share, a decline of nearly 70% from the Offering Price.
What Now: Shareholders who purchased shares of Freshworks Inc. pursuant to the Company’s IPO, must file their papers to be appointed lead plaintiff for the class by January 3, 2023. A lead plaintiff is a representative party acting on behalf of other class members in directing the litigation. You do not have to participate in the case to be eligible for a recovery.All representation is on a contingency fee basis. Shareholders pay no fees or expenses.