News that Klarna is waiting for more favorable market conditions before going public felt a little odd yesterday. Today, hesitation to go public feels downright strange. New pricing information from U.S. tech unicorn Toast and Indian tech unicorn Freshworks indicate that the IPO market is more than welcoming.
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Toast raised its IPO range and priced above that raised interval. Freshworks also bumped up its IPO price expectations and then priced above that set of price targets.
If you are looking for an indication that it’s a good time to go public, this is it. Sure, both companies have yet to start trading, but even flat debuts would represent strong fundraising tallies and strong upward mobility in valuation terms.
This morning, we’re going to run the final numbers, calculating how much the companies are worth and what those figures say about startup prices, especially in the payments space. And then we’ll close with one of the more humorous answers I’ve ever gotten from a startup executive. Sound good? Let’s talk money.
Freshworks, Toast price well
Toast first targeted an IPO range of between $30 and $33 per share. The company then looked toward a $34 to $36 per share IPO price. It finally sold 21,739,131 shares at $40 apiece, with its underwriters having the option to purchase another 3,260,869 shares at its IPO price if they so choose. The company’s IPO fundraise could be worth as much as $1.0 billion in its debut.
Freshworks set its IPO price range between $28 and $32 per share. That didn’t last, with the customer support software company raising its range to between $32 and $34 per share. Freshworks priced at $36 per share, selling 28,500,000 shares with an underwriter option of 2,850,000 more shares. The company’s IPO fundraise could be worth as much as $1.1 billion.
Recall that Renaissance Capital valued Toast at $17.9 billion at $31.50 per share (the midpoint of its first IPO range), and Freshworks at $9.6 billion at $30 per share (again, the midpoint of its first IPO pricing interval), both calculated with fully diluted share counts. Simple math indicates that Toast is worth around $22.7 billion at its IPO price, and Freshworks at $11.5 billion, again using fully diluted share counts.
You will see lower numbers out there, likely calculated using a simple — more conservative — share count. Those are also valid.
In revenue multiple terms, Toast’s and Freshworks’ final IPO prices are good news for the companies. With $424.7 million in Q2 revenues, Toast is worth 13.4x its annual run rate. Freshworks is worth 32.5x its own run rate. The differential that we see there is the difference between the two companies’ business models. Toast is a majority payments/fintech company, while Freshworks is a more pure-play SaaS company. SaaS has stronger gross margins than payments revenues — and is stickier (i.e., recurring) than transaction incomes. So, it gets a higher multiple.
Still, both companies have managed strong valuations when we consider their present-day revenue bases. Freshworks will enjoy a top-tier SaaS multiple when it begins to trade later today. And Toast is getting a lower-end software multiple for mostly fintech revenues. Both companies are winners in their IPOs.
To better understand Toast’s new revenue multiple, The Exchange asked Toast CFO Elena Gomez whether she considers the unicorn “more as a software company, or more of a payments company,” a fair question in our view given just how much revenue the company generates from the latter category.
In a perfect example of why talking to corporate execs around their IPOs can be a little bit less than illustrative, here’s Gomez’s response:
Toast is an end-to-end platform built for restaurants of all sizes. We have integrated payments and software on our platform which is critical for a restaurant’s success. We are well positioned to become the operating system for the industry. There are approximately 48,000 restaurant locations on the Toast platform processing over $38 billion of gross payment volume. Toast’s restaurant specific platform is fully integrated across point of sale, operations, digital ordering and delivery, marketing, team management and financial technology to help restaurants simplify and grow their business.
That’s not an answer to our question. It is a fine paragraph describing why Toast thinks that it has built itself a pretty good business, perhaps.
At some point, I need to write a joke post about IPO day conversations. Those chats often sound like this:
- TechCrunch: Hello [CEO/CFO], curious how you feel about pricing above range and what the extra capital will unlock for the company in the near term?
- [CEO/CFO]: Going public is just one step in a longer journey. We’re building a company for the long haul.
At which point you simultaneously want to rip out what’s left of your hair and are also dosed with what could be construed as empathy for an exec concerned about not accidentally pissing off the SEC by saying the wrong thing. So, we keep sending in questions and getting on the phone, even if the results are fairly opaque most of the time.
Back to the topic at hand: The IPO market is more than willing to pay top dollar for tech unicorn equity, it’s clear from the Freshworks and Toast debut pricing marks. Will unicorns take advantage? Let’s see who files next.
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