Fresh crorepatis: Freshworks' stellar listing
Finance
September 22 marks a historical moment for the Indian startup ecosystem, especially for India’s software products company, as Freshworks becomes the first-ever Indian software products company to list on Nasdaq.
Filling gaps
In 2010 when Zendesk, a customer support and sales communication platform, raised its prices by 60-300%, its clients were extremely unhappy, and this is when Girish Mathrubootham identified the opportunity and grabbed it.
Soon, Mathurbootham and Shan Krishnasamy began work on creating a user-focused cloud-based customer service software.
The company was founded as Freshdesk and was later rebranded to Freshworks in 2017. It is currently headquartered in San Bruno, California.
Bumper listing!
A little over a decade later, the company is now listed on Nasdaq.
The company has raised over USD 1.03 billion via its IPO and recorded a market capitalization of USD 10.13 billion. It sold 28.5 million shares at the rate of USD 36, listing at a premium of 21% at USD 43.5.
By the end of the trading session yesterday, the company’s share price rose as much as 33%, closing at USD 47.55, with USD 13 billion market capitalization.
500+ employees are now crorepatis
Freshworks employs over 4300 people globally, 76% of whom hold shares in the company. The stellar IPO debut has made over 500 of its Indian employees’ crorepatis, 70 of which are under the age of 30!
“Our employees are also our shareholders. This IPO has allowed me an opportunity to fulfil my responsibility as a CEO to early shareholders - both VC investors and employees who have believed in the dream of Freshworks.”
Joins a dozen other Indian companies on Nasdaq
Winner of the ET Startup of the Year in 2016, and featuring #40 on the Forbes Cloud 100 list for the third consecutive year in 2019, Freshworks is the software-as-a-service (SaaS) company from India to list on Nasdaq.
The CEO, Mathrubootham, believes that this could be a turning moment for India’s software product companies, paving the path for more to follow and scale.
The first-ever Indian company to list on Nasdaq was Infosys in 1999.
Seven rounds of funding
Freshworks raised its first USD 1 million in December 2011 from Accel. Its last fundraising of USD 150 million from Sequoia Capital, CapitalG and Accel in November 2019 raised the valuation of the company to USD 3.5 billion.
The company has previously had seven rounds of funding in total.
Shareholding pattern after IPO:
USD 300 million+ revenue
With over 52,500 customers in 120 countries, Freshworks has reported a 49% growth in revenues, to USD 308 million, in the last 12 months. The loss, during the same period, narrowed to USD 10 million.
With the total addressable market for the company USD 120 billion, the company has a long way to grow.
"Sigaraththai adainthaal Vaanaththil yeru" (when you conquer the peak, reach for the skies).
ITC: The prodigal son returns
Business
The most popular Indian meme stock - ITC - has seen a ~15% rise in one week, achieving a 52-week high. This has caught the hopes of many equity investors, of seeing the stock realise its true potential after remaining stuck in the 200-220 price range this year. So, today let’s take a deep dive into this FMCG giant’s stock performance.
As compared to other investments, ITC has offered negative returns*
*5 y cagr used in calculation
Why the negative returns?
Historically, ITC had failed to capitalise in the true sense for many of its long term investors.
With the company drawing a major chunk of its revenues (translated to ~85% of profits) from cigarettes, products like Gold Flake & Classic, and has failed to successfully expand its businesses to other domains even when legal smoking has been on a decline over the years
Owing to its coming-of-age companies, ITC has been able to manage significantly low profitability (~2%), as compared to the sector average of ~25%.
ITC Hotels idea backfired - leading to very low ROI (Return on Investments) and significant write-offs.
Showing poor growth in revenues (3.84%) & profits (5.11%) has further hindered the company in luring enough investors.
And the worst of all…
The memes
When the market saw a tectonic rise, ITC was dropping to multi-year lows - owing to its poor cash allocation. Missing no chance to highlight this further, the internet audience began trolling the investors, making many retail investors unsure of their decision to invest in the company.
So what happened now?
ITC Ltd. has risen for 5 straight days, as of yesterday. The technical breakouts last week combined with a bullish sentiment towards the FMCG sector & cigarette business as post-COVID recovery, have aided it to reach the current YTM highs. With a cigarettes price hike expected in H2 of FY 2022, demand is expected to pick up, leading to an increase in overall long term stock price for the company.
Author’s opinion
ITC Ltd. has one of the healthiest financials to date. With healthy Return on Equity (ROE), high yield & high-interest stock and being an FMCG brand with the second highest market cap - one can expect to hold the stock for the long term. The breakout from the 220-price band still remains a pivotal aspect for the company, however, the brand can still be expected to make the most of the current sentiment towards its performance.
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