Snowflake (NYSE:SNOW), which provides a cloud-based data warehousing platform, priced its IPO at $120 per share last night. This came after the price range was boosted from $75-$85 to $100-$110. And in yesterday’s trading, the Snowflake IPO went up about 145%.
The underwriters on the deal included Goldman Sachs (NYSE:GS), Morgan Stanley (NYSE:MS), J.P. Morgan (NYSE:JPM), Allen & Company, Citi (NYSE:C), Credit Suisse (NYSE:CS), Barclays (NYSE:BCS), Deutsche Bank (NYSE:DB), Mizuho Securities and Truist Securities.
In all, the company raised about $3.6 billion from its offering. This makes the deal the biggest for the year. It’s also the biggest ever for a software company.
Salesforce.com (NYSE:CRM) purchased $250 million of the Snowflake IPO (through a private placement). But then again, so did Warren Buffet’s Berkshire Hathaway (NYSE:BRK.B). It’s not common for him to buy an IPO, much less of one that is in the tech industry. In fact, Buffet bought an additional $484.8 million in stock from the former CEO of Snowflake, Bob Muglia.
The Platform
The founders of Snowflake came from the traditional database world. They served at companies like Oracle (NYSE:ORCL), IBM (NYSE:IBM), and Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG). In other words, they lived the pains of legacy technologies. So when the founders started Snowflake, the focus was on reinventing the category.
Although, this took a lot of heavy lifting. Note the development of the initial system took two years to build.
The mission was to solve the huge challenges of data silos and governance. To this end, Snowflake set out to target the massive market for data warehouses. This meant building a cloud-native platform.
“Snowflake’s unique approach to separating storage and compute is revolutionary in the value it delivers to customers,” said From Rick Farnell, who is the CEO of Protegrity. He continued:
It’s not just a ‘pay-for-what-you-use’ solution that doesn’t provide value in idle times. Instead, customers get the simplicity of shared-disk architecture and the scale-out benefit of a shared-nothing architecture – all in one solution. Snowflake nailed the user experience and makes it easy for customers to gain value, without having to worry about back-end issues that routinely slow innovative analytics projects. It’s highly flexible and can run on any major cloud. With a strong focus on SQL as an engine, Snowflake’s capabilities are available to the world’s most popular language for interacting with data.
Snowflake’s growth has certainly been remarkable. From fiscal years 2019 to 2020, revenues soared from $96.7 million to $264.7 million. The net retention rate is a hefty 158% and there are over 3,100 customers. Consider that 56 customers generate more than $1 million in annual revenues.
“Snowflake’s IPO marks a turning point for cloud and data technology,” said Sean Knapp, who is the founder and CEO of Ascend.io. “While we’ve seen a handful of other cloud-native data platforms such as Datadog (NASDAQ:DDOG) and Sumo Logic demonstrate incredible growth, none have done so as remarkably as Snowflake. Moreover, Snowflake has been wildly successful in pulling budgets away from not only on-premises solutions, but also from existing cloud-based solutions. In the past year alone, the company’s revenue and customer growth has been nothing short of astonishing. And as a business technology, Snowflake is unique as it is neither open source, nor built by one of the top cloud vendors.”
In terms of the market opportunity, it is enormous. Snowflake estimates it at about $56 billion. And it is forecasted to hit $84 billion by the end of 2023.
Bottom Line on the Snowflake IPO
The leadership for Snowflake is top-notch. Consider that the CEO is Frank Slootman. Before taking this position, he was the CEO of Service Now (NYSE:NOW), which he took from $100 million in revenues to $1.4 billion (the company’s market capitalization is currently about $88 billion). Before this, he built Data Domain from the early stages and eventually sold it to EMC for $2.4 billion.
Of course Snowflake is not without its risks, either. The company has considerable competition, such as from Google, Amazon (NASDAQ:AMZN) and Microsoft (NASDAQ:MSFT). There will likely be other startups that emerge as well.
Besides, when it comes to IPOs, there is usually a great deal of volatility. So if you are considering an investment in the Snowflake IPO, a good approach is to treat is as part of the higher-risk part of your portfolio.
On the date of publication, Tom Taulli did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Tom Taulli (@ttaulli) is an advisor/board member for startups 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.
