Stock market blizzard: Snowflake set for £33bn IPO as valuation bubble keeps on expanding
- Reference: 1600266683
- News link: https://www.theregister.co.uk/2020/09/16/worth_more_than_tesco_or/
- Source link:
The eyewatering valuation comes two months after the firm was said to be mulling a share offering that would have valued it at $20bn, in a [1]confidential IPO filing .
But by Monday this week [2]Snowflake had lifted its expected pricing range in an S1 filing to $100 to $110 per share. By yesterday it had filed an [3]equity incentive plan that reflected a maximum offering price per share of $120. Today Snowflake confirmed it went with the high end of that range, saying 28 million shares of Class A common stock would be offered to the public at $120.00 a pop. Lucky old us.
Just 18 months ago the San Mateo-based company was worth $1.5bn, according to an investment round.
Shares started trading on the New York Stock Exchange today under the ticker symbol SNOW, with the offering closing on 18 September 2020.
The frenzy of interest in Snowflake comes as the investment world is desperate for high-growth companies in a post-COVID-19 lockdown world. Investors seem to think data analytics will help organisations navigate the new landscape, making Snowflake a safe bet. The interest is such that legendary investor [4]Warren Buffet, who hasn't put money into an IPO since 1955, is said to be considering a flutter .
The focus of investors' enthusiasm for the company is based on its growth in revenue, which increased 174 per cent from $96.7m in January 2019 to $264.7m in January 2020. Okta, which publishes an annual report on the growth of enterprise apps, [5]said Snowflake was the fastest-growing application in 2019, at 273 per cent .
As the old adage goes, revenue is vanity, and the company has yet to turn a profit. [6]Net losses were $178m for the year ended January 31 2019 and $348.5m for the year ended January 31 2020 .
Is the market hype justified?
Philip Carnelley, AVP of European software research at IDC, said the valuation was "astonishing" adding that Snowflake had found itself in the right place at the right time.
"Talking to CIOs and chief data officers, it's clear that business resilience is so important and trying to understand customer demand and supply chain behaviour is hard because previous patterns no longer apply," he said.
He said corporations were also prioritising the move to the cloud along with analytics in their "post-COVID" strategies. Some users prefer a cloud-agnostic approach to data warehousing and analytics, which favours Snowflake as it is available across Azure, AWS and Google Cloud Platform.
However, the company's valuation was down to investment analysts, he said.
Snowflake claims its technical advantage lies in its separation of storage and compute, and the ability to create virtual warehouses as an MPP compute cluster, composed of multiple compute nodes allocated by Snowflake from a cloud provider. Snowflake [7]has said this means each virtual warehouse has no impact on the performance of other virtual warehouses.
But with AWS, GCP and Azure all keen on the market for data warehousing, analytics, data pipelines and machine learning, whatever Snowflake’s advantage is may not last forever.
Philip Howard, research director at Bloor Research, said: "Snowflake has lost a lot of its initial advantages. Everybody more or less has separated storage from compute, for example. All the gorillas in this space, and the minnows, now have cloud offerings and most of them offer data warehouse as a service."
In the cloud data warehouse market, there was most interest in Snowflake, Synapse, BigQuery and Redshift: in that order, he said.
"I think the biggest advantage that Snowflake now has is its momentum. And that will be helped, short term, by the IPO process. As for the price, I think it's ridiculous for a company that is still loss-making," Howard said.
"Continuous software release management" folks at JFrog will also float today, with a target range of $39 to $41 a share - valuing it at $3.4bn-$3.6bn. It's expected to start trading on the Nasdaq under the moniker FROG. Also listing on the Nasdaq soon is real time analytics software company Sumo Logic, which will name a price today - within a range of $17 to $21 a share (valuing it at $2.1bn at the high end) - and should trade from tomorrow. ®
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[1] https://www.theregister.com/2020/06/10/snowflake_ipo/
[2] https://www.sec.gov/Archives/edgar/data/1640147/000162828020013518/snowflakes-1a2.htm
[3] https://www.sec.gov/Archives/edgar/data/1640147/000162828020013641/snowflakes-8.htm
[4] https://www.benzinga.com/news/19/03/13442887/warren-buffett-on-cnbc-says-he-hasnt-bought-an-ipo-since-1955
[5] https://www.thestreet.com/investing/snowflake-boosts-price-range-for-initial-public-offering
[6] https://www.sec.gov/Archives/edgar/data/1640147/000162828020013010/snowflakes-1.htm
[7] https://docs.snowflake.com/en/user-guide/intro-key-concepts.html
[8] https://whitepapers.theregister.com/
It is a ridiculous valuation, but people are preparing to spend vast money on snowflake. We're a small company doing , and we have a strategy for unifying our data lakes, ingestion and export in to something based around snowflake. Our expected billing to them will be in the seven figures range within a couple of years apparently.
£10bn maybe, £33bn seems way over hyped.
It has climbed significantly since the article was written. We're looking at an opening price in the $200 range, leading to a paper valuation of $50-60Bn. This is for a company with a $280M revenue and a $350M loss.
That's a bubble. Not just a bubble. An insane, pants on head bubble. It was insane at $100. To get any kind of returns on a price of $80 implies the company getting to 25+% free cash flow inside of five years. That would be hard. A price of $120 is near impossible. A price north of $200 is a bonfire of someone else's money.
> Our expected billing to them will be in the seven figures range within a couple of years apparently.
This is as much a risk as it is a positive. Vendors can enjoy runaway growth while they're still acquiring customers or when those customers are still not spending very much money. Snowflake meet both of those criteria - their customer count is accelerating but they're not spending very much per customer. That's why they're spending $350M a year to make $250M a year. They need to both maintain that growth rate _and_ cut their costs by an order of magnitude, and do that while all their customers suddenly look at 7-8 figure bills for what is fundamentally just a sql database as a service.
AWS cloud database
Give me $1 billion, I'll repackage Amazon Web Services, my revenue growth will be fantastic, but erm, the losses will grow too, never mind that, look at the growth in my IPO estimated price range!
BUY BUY BUY! It'll be bigger than ENRON!
I'm wary of things that look like VC arbitrage.
small error on previous valuation
The story has an error:
"Just 18 months ago the San Mateo-based company was worth $1.5bn, according to an investment round." is off by a factor of almost 10.
from ( https://www.forbes.com/sites/alexkonrad/2020/02/07/snowflake-raising-at-12-billion-valuation/#2112a84f486a ) dated Feb 7, 2020,06:52pm EST the headline and story state:
Snowflake Set To Be Worth $12.4 Billion After New Funding, Making It One Of Tech’s Most Valuable Startups.
Not claiming any right/wrong... just the facts...
That valuation is positively absurd. If I were a Snowflake employee, I'd be ticking off the days until the lockup ends and then plan on selling every share I could. Yes their growth figure is spectacular, but their loss figures are _off the charts_ and their product is no longer in any way, shape or form unique. There's enough of the crew at Snowflake who are ex-Cloudera* who will know what it's like to go from hyper-unicorn to tremendously unfashionable in the space of four quarters as someone else does your trick but shinier. If they've got any sense they'll all sell up, buy their new boat and resign to live on the beach before the bubble bursts and the CFO starts cutting costs back to the bone.
*Who are a cautionary tale/good comparator in a number of ways. Same sales play (snowflake even nicked their "data cloud" language), same target market, very similar technology stacks, very similar architectural approaches. Cloudera have three times the revenue, positive cash flow and are still clocking in dependable growth every quarter despite some disastrous recent business decisions. They're apparently worth _one tenth_ of what Snowflake will open at, because they only do 10-15% of their business on the cloud. The market is _insane_.