On November 1, 2022, Mohan Sundaram (“Plaintiff”) filed a class action complaint against software company Freshworks, Inc. (“Freshworks” or the “Company”) in the United States District Court for the Northern District of California. The proposed class consists of all persons and entities that purchased or otherwise acquired Freshworks common stock issued in connection with the Company’s Initial Public Offering (“IPO”).
Freshworks is a software company headquartered in San Mateo, California, that provides customer engagement software for businesses. Freshworks had its IPO on September 22, 2021, raising $1.03 billion by selling 28.5 million shares of its common stock at $36 per share.
Plaintiff brought suit against Freshworks, certain Company executives and directors, and the underwriters of the IPO (collectively, “Defendants”) under Sections 11, 12, and 15 of the Securities Act of 1933. Plaintiff alleges that Freshworks either misstated or omitted material information in the presentations and documents provided to potential investors during the IPO (“Offering Documents”). Specifically, Plaintiff claims that the Offering Documents stated that Freshworks’ business had “grown rapidly” in the lead up to the IPO and that the Company observed “broad appeal of [its] products to customers of all sizes and geographies.” The Offering Documents highlighted Freshworks’ 118% net dollar retention for 2Q 2021, an increase from the 107%, 111%, and 112% net dollar retention of prior periods. Freshworks also represented a Year-over-Year (“YoY”) revenue growth rate of 53% as of June 30, 2020, an increase from the previous year’s 45% YoY revenue growth rate.
But in reality, Freshworks had static calculated billings growth and decelerating revenue growth. The truth of the company’s financial state was revealed when Freshworks announced its fiscal 4Q 2021 earnings in February 2022. In the report, the Company revealed its revenue growth and billings faced obstacles that were not disclosed to the investing public in the Offering Documents. As the truth about the Company’s financial situation emerged, Freshworks’ stock price declined from its IPO level by nearly 70%, trading at $10.51 by the commencement of the class action.
Defendants have not yet filed a response to Plaintiff’s complaint. The deadline to file for lead plaintiff in this action is January 3, 2023. The Honorable Charles R. Breyer is presiding.
Updates will be posted to this blog as the matter progresses. The case caption for this action is Sundaram v. Freshworks Inc. et al., No. 3:22-cv-06750-CRB, filed in the Northern District of California.
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