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Will Snowflake Be This Year’s Hottest IPO?

Snowflake, which is a native cloud data warehouse company, has filed for an IPO. Note that the offering is likely to be one of the biggest for this year. Although, the Snowflake IPO was done on a confidential basis, which means there is no access to the S-1 yet.

snowflake ipo
Source: Shutterstock

Despite this, there is still quite a bit of information available on this company.

Back in 2012, Thierry Cruanes, Benoit Dageville, and Marcin Zukowski — who had extensive backgrounds in the traditional data warehouse industry — founded the company (the name came about because they like to ski). Note that they had worked at companies like Oracle (NYSE:ORCL), IBM (NYSE:IBM) and Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG).

The core technology for Snowflake is extremely complex. To get a sense of this, the product was not launched until a couple years after the company was started.

The Snowflake Platform

Why has Snowflake become so successful? First of all, the system is easy to use. You just have to fill out a simple form to spin-up a service.

The architecture is also quite powerful. And a key to this is that the storage and compute functions are separated, which allows for seamless scaling of the service. This is certainly a big plus for IT departments, which are often understaffed and under-resourced.

Another essential part of Snowflake is that it is multi-cloud. This not only means lower costs but there is less lock-in to any system. In fact, because of these advantages, Snowflake has become one of the biggest lead sources for cloud platforms like Amazon (NASDAQ:AMZN), Google and Microsoft (NASDAQ:MSFT).

Yet perhaps the most interesting part of the company – which will likely be a major factor for the success of the Snowflake IPO – is the market opportunity. After all, the traditional data warehouse market is expected to go from $13 billion in 2018 to $30 billion by 2025 (based on research from Global Market Insights).

No doubt, one of the drivers is the secular trend of cloud computing. But there are other catalysts like Artificial Intelligence (AI) and machine learning, which may even be more important over the long haul.

It should be no surprise that Snowflake has been growing at a rapid pace. For the prior fiscal year, the revenues spiked by 174%, according to a report from Techcruch. There are over 3,500 customers, which include Netflix (NASDAQ:NFLX), Yamaha, NBC Universal, Lululemon (NASDAQ:LULU) and the University of Notre Dame.

Interestingly enough, the business model for Snowflake is different when compared to a typical cloud company (which usually charge according to a subscription plan). Its fees are based on the usage of the service, which can often be more cost-effective. It’s also a model that has been successful with other successful companies like Twilio (NASDAQ:TWLO).

Bottom Line on the Snowflake IPO

Snowflake has already raised a substantial amount of capital. The latest round came in February when the company brought in a haul of $479 million at a $12.4 billion valuation, with investors like Salesforce.com (NYSE:CRM), Sequoia, Altimeter Capital, and Dragoneer Investment Group. In all, Snowflake has raised $1.4 billion.

The CEO of Snowflake, Frank Slootman (who came on board in May 2019), is a proven tech veteran. Before joining the company, he held the CEO position at ServiceNow (NYSE:NOW), which he took from $100 million to $1.4 billion in revenues. He also was the CEO of Data Domain. He sold the company for $2.4 billion to EMC.

In other words, Slootman knows what it takes to manage fast-growing tech companies – and generate substantial returns for investors.

“Over the next 5 years, Snowflake has the chance to be a $50 billion company,” said Robert Roman, who is the CEO and Managing Director at MGO Wealth Advisors. “Snowflake has become the default choice to store data at the enterprise level.”

So then what about the timing for the Snowflake IPO? It’s not clear right now since the company used a confidential filing. But the offering could hit the markets some time next month.

Tom Taulli (@ttaulli) is an advisor and author of various books and online courses about technology, including Artificial Intelligence Basics, The Robotic Process Automation Handbook and Learn Python Super Fast. He is also the founder of WebIPO, which was one of the first platforms for public offerings during the 1990s.  As of this writing, he did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media, https://investorplace.com/2020/06/will-snowflake-be-this-years-hottest-ipo/.

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