By Corrie Driebusch and Dave Sebastian
Snowflake Inc.'s shares skyrocketed on their first day of
trading, giving the biggest tech IPO of the year a valuation of
roughly $75 billion and feeding the recent bout of enthusiasm
around initial public offerings.
Shares of the data-warehousing company recently traded at
$269.06, more than double their IPO price of $120 and more than
triple what the company initially targeted a week ago for its
offering. Just after the stock opened, it traded as high as $319.
Wednesday's ascent means the company is now valued at more than
five times the $12.4 billion valuation it notched in a private
funding round in February of this year.
"Does this put pressure on us? Of course it does," Frank
Slootman, Snowflake's chief executive, said about the company's
soaring stock price. "It's a vote of confidence. But clearly as a
management group and as an employee base we have to work very hard
to deliver on it."
Hunger for growth in a low-interest-rate environment and a shift
of favor toward technology companies have helped fuel significant
demand for IPOs this year, and Snowflake's first-day performance is
likely to add even more hype. Snowflake is one of the most hotly
anticipated tech offerings among software and cloud-data
Snowflake's rise is also emblematic of the broader tech sector's
run-up in 2020. The tech-laden Nasdaq Composite Index is up 24% so
far this year, far outdistancing the gains in the S&P 500, even
after a recent pullback.
"When you're in a recession, growth is hard to find. It's a
scarce commodity. When you find something scarce, you're going to
have to pay up," said Kevin Landis, chief investment officer of
tech-focused Firsthand Capital Management Inc., which invests in
public and private companies.
Like many startups to hit public markets, Snowflake isn't
profitable, but it has grown rapidly. For the six-month period
ended July 31, the company lost $171.3 million and had revenue of
$242 million, which more than doubled from the year-ago period. Its
loss for the fiscal year ended Jan. 31 nearly doubled to $348.5
million from the previous year, though revenue almost tripled to
Snowflake has reeled in two notable anchor investors -- Warren
Buffett's Berkshire Hathaway Inc. and Salesforce.com Inc.'s
investing arm, Salesforce Ventures -- which each poured $250
million into the company as it went public, buying shares at the
$120 IPO price.
The initial public offering of 28 million shares raised roughly
$3.4 billion for Snowflake, not including additional shares the
underwriters are entitled to buy or the Berkshire and Salesforce
investments. Snowflake said it plans to use proceeds to fund its
operations and potentially make acquisitions.
Companies listing in the U.S. raised more than $78 billion in
their IPOs through the end of last week, on pace for one of the
biggest money-raising years for new issues since the tech boom of
2000, according to data provider Dealogic. The IPO market was
restrained earlier this year due to the Covid-19 pandemic.
Investors, faced with interest rates near historic lows and the
Federal Reserve pouring trillions of dollars into the economy,
later sought to put their money where they can get better
Mr. Landis of Firsthand Capital said he sees some similarities
between the market now and the tech bubble two decades ago, but he
doesn't expect another reckoning. The largest companies in the
world have ballooned in valuation, making a debut like Snowflake's
less crazy. There is still room for Snowflake to grow, he said,
adding that among investors, "There's a rethinking of what a
company can be worth."
He is familiar with hype around tech stocks: His Silicon
Valley-based firm's tech fund soared during the tech boom and then
suffered when the bubble popped.
Firsthand didn't buy shares of Snowflake in its IPO, viewing it
as a bit too popular, he said, adding that he prefers to purchase
companies that fly more under the radar. Otherwise, they risk
highflying prices like that of Snowflake.
"Right now, there's really not enough growth to go around," he
Mr. Slootman, Snowflake's chief executive, is no stranger to the
IPO process. He successfully steered software company ServiceNow
Inc. and data-solutions company Data Domain Inc. through IPOs when
he served as CEO of each.
Snowflake, based in San Mateo, Calif., offers businesses
cloud-based data management, and corporate customers can share data
across multiple online storage systems using the company's data
warehouse. It had more than 3,000 customers as of July 31,
according to its securities filing.
At its IPO price, Snowflake was valued at roughly $33.3 billion.
That made it the second-largest company to go public in 2020 by
that metric, according to Dealogic, after Quicken Loans parent
Write to Corrie Driebusch at firstname.lastname@example.org and Dave
Sebastian at email@example.com
(END) Dow Jones Newswires
September 16, 2020 14:45 ET (18:45 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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