Earlier today, TechCrunch examined the new IPO price range for Toast. The U.S. software-and-fintech company moved its valuation materially higher in anticipation of pricing tomorrow after the bell and trading on Wednesday. It was not alone in doing so.
Freshworks is also targeting a higher IPO price range, it disclosed today in a fresh SEC filing. The customer-service-focused software firm now expects to charge between $32 and $34 per share in its debut, up from the $28 to $32 per-share range that it initially disclosed.
Doing some back-of-the-envelope math, Freshworks’ IPO valuation could just pass the $10 billion mark, calculated on a fully diluted basis. Its simple IPO valuations, while rising, are lower than that figure.
Mathing that out, Freshworks expects to have 284,283,200 shares outstanding when public, inclusive of its underwriters’ option, but not inclusive of vested shares present in RSUs or options. At its new IPO price range, Freshworks would be worth between $9.1 billion and $9.7 billion.
Previously, IPO firm Renaissance Capital estimated that at the midpoint of its initial range ($30 per share), Freshworks would be worth $9.6 billion when calculated using a fully diluted share count. At $34 per share, TechCrunch expects that figure to rise to just under $11 billion.
As with the new Toast pricing scheme, that’s a lot of coin.
In its most recent quarter, the three-month period ending June 30, 2021, Freshworks generated revenues of $88.3 million. That was up from $56.5 million in the year-ago quarter, or a gain of just over 56%. For a company at scale, that’s a more-than-solid growth rate.
The company’s Q2 2021 revenue result provides it with an annualized run rate of $353.4 million. At the top end of its simple IPO valuation, Freshworks is worth around 27.5x its current revenue run rate. On a fully diluted basis, the company’s run-rate multiple rises to around 31x.
That would put Freshworks in the same tier of public SaaS companies as UiPath and Okta, heady company given their historically rich valuations. Freshworks, then, is set to go public at a valuation that it must find attractive. Along with its investors, we reckon.
A host of venture capital firms are set to mint fortunes in the Freshworks debut.
Our read from this particular set of numbers, along with Toast’s own, is that the public markets are incredibly open today for technology debuts, even from unprofitable tech shops prioritizing growth. This is music to startups’ ears. Sure, SPACs have slowed in recent quarters, but who really cares when the traditional IPO market is this hot?
For unicorns — companies enjoying extended stays in the liminal state between Startup Land and the public markets — the positive re-pricing of Toast and Freshworks is safety. An indication that their decision to hold off on public offerings is still healthy, as public-market investors are still willing to pay massive premiums for software equity without any hint of impending shareholder return from corporate coffers.
At some point, having an entire industry trading at P/S multiples that read like elevated historical P/E ratios will have to either normalize or rewrite the rules of investing. But for today the game is still afoot, and lots of VCs should be kicking their investments into IPO gear while the getting is this good.
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