The largest software IPO ever, Snowflake (SNOW) a cloud-based data warehouse provider made its debut on the New York Stock Exchange last week Wednesday with much fanfare.
The Initial Public Offering (IPO) listing expectation was for the stock to list around $75 a share which was revised upward to $120 per share initial offering. The demand was so overwhelming; the stock opened earlier on Wednesday at $245 a share which quickly moved over the $300 mark but pulled back later.
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Fundamentals
Strong demand for the Berkshire Hathaway (BRKB), Salesforce (CRM) backed share was valued at $70.4 billion, closed the day for a nearly 112% gain. This was a massive payday for the company’s venture capital investors who initially valued Snowflake at around $12.4 billion a couple of months earlier.
“The partnership with Snowflake could help Salesforce compete even more effectively against the Amazon (AMZN), Microsoft (MSFT) and Google owner Alphabet (GOOGL). Snowflake competes with Amazon's AWS, Microsoft's Azure and the Google Cloud platforms.” - Paul R. La Monica
Snowflake Inc (SNOW) share overview:
- Sector: Information Technology
- Market Cap of $66.41 billion.
- Enterprise value-to-sales: 167.5x
- 52 Week Range low of $227.54 and $253.93 per share high.
Outlook – The world throws caution to the wind when the "Oracle of Omaha" starts buying stocks, especially tech start-ups considering Berkshire tends to invest in mature, profitable companies. Snowflake is not yet profitable even though sales have soared. The company’s revenue has doubled in six months to $242 million but posted a net loss of $171 million.
Snowflake’s IPO was a huge success, but market participants are cautious that tech might be heading for a bubble. A Barrons article headline highlights concerns about tech investing – "Snowflake’s IPO Has Made It Official: Tech Investors No Longer Care About Price”.
Chart Life
Snowflake has undoubtedly grabbed our imagination, but technically it is still early days to establish a trend in any direction on the stock. If we take into consideration the market's behavior around "unicorn" IPO's, then we might expect heightened interest, followed by increased selling over the next couple of trading days.
Portfolio particulars
- Portfolio Neutral (Current)*
- Portfolio Buy opportunity: Neutral**
- WhatsTheBeef long term target price: Neutral.
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Informed decisions
“Unicorn" IPO's seem to be like snowflakes, munch anticipation and excitement followed by a watery mess leaving you out in the cold, so is this one be different?
Snowflake is a well-run company; its shares priced doubled in value over its IPO price and considering its price to sales is 167x, it might be too rich for my blood. We might see Snowflake go down the same path as other “Unicorn” IPO’s over the last 18 months and other options like Datadog, DocuSign and Okta might also be attractive in this space.
New to the Information Technology sector
and want to know more about Initial Public Offerings?
Read: The Beef on securing the bag: USD IPOs
Sources –EasyResearch, Snowflake Inc, CNN Business, The New York Times, Barron’s, The Motley Fool, Koyfin, TechCrunch
Take note: all data was taken on 21/9/2020 before the U.S market open.
*Portfolio Hold (Current) refers to investors who already hold the stock within their portfolio.
**Portfolio Buy opportunity refers to Technical level crossed which might imply that the markets behavior would support the outlook and Close above refers to a share price close above a Technical Resistance level.
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Barry is a market analyst with GT247, with a wealth of experience in the investment markets. Now in his tenth year in the markets, Barry "The Beef" Dumas brings a combination of technical analysis and fundamental insights to the table.
