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Stock market blizzard: Snowflake set for £33bn IPO as valuation bubble keeps on expanding

The price? 'ridiculous for a company that is still loss-making' - analyst

Cloud data warehouse slinger Snowflake has set an IPO price valuing the company at $33bn, making it nominally worth more than US retailer Best Buy or UK supermarket chain Tesco.

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 confidential IPO filing.

But by Monday this week Snowflake had lifted its expected pricing range in an S1 filing to $100 to $110 per share. By yesterday it had filed an 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 valued at $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 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, 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. 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 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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