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Snowflake IPO Has Upside: The Next Big Cloud Company?

Thursday, September 10, 2020 | Sean Sechler
Snowflake IPO Has Upside: The Next Big Cloud Company?

Staying ahead of the curve is key if you are focused on building wealth in the stock market. Whether it’s recognizing when the trend is changing or finding the companies with the most upside, it can really pay off when investors can find ways to stay a few steps ahead of the pack. That includes learning about the newest companies that are planning to go public. We’ve already seen several successful IPOs this year as the market shrugged off the pandemic, and there’s another new cloud technology company going public soon that is generating a lot of positive hype.

Snowflake (NYSE:SNOW) is a rapidly growing cloud technology company whose services are in high demand. The company is currently preparing to go public and has a unique take on cloud data that could be the next big thing in tech. Let’s take a look at a few reasons why Snowflake’s IPO could be the biggest of the year.   

Giving Businesses New Ways to Store Data

In order to better understand why Snowflake is a company that investors should be interested in, it helps to learn about what sets them apart in the competitive cloud-computing industry. Snowflake essentially offers companies a better way to store and access their data. Its main product is a cloud-based data warehouse that allows corporate users to store and analyze data with a single platform. During a time when many businesses are spending big on upgrading their data storage capacities, a company like Snowflake is perfectly positioned to grow.

Snowflake’s main competitive advantage is less scale and concurrency limitations when compared to other solutions thanks to its unique architecture. Without getting too technical, the platform can allow companies to enable heavy queries and have their operations run smoothly regardless of how much data they are putting into the system. The platform also has the advantage of working on any cloud and enabling customers to shift data between different clouds, which is something that competitors cannot offer.

Already Finding Big Buyers

When a company decides to go public, it prices its IPO based on the demand for shares. That’s one of the impressive things about Snowflake, as it has already received $1.6 billion from some big buyers. In fact, Warren Buffett’s legendary Berkshire Hathaway (NYSE:BRK.B) has agreed to purchase $250 million of stock at the IPO price. Berkshire also has agreed to buy another 4.04 million shares from a current Snowflake shareholder via a secondary transaction.

If investors were looking for a vote of confidence, the fact that Warren Buffett is interested in this company should do the trick. Keep in mind that Mr. Buffett has historically avoided buying expensive growth stock IPOs, which says a lot about Snowflake’s potential. Salesforce (NYSE:CRM) is another prominent buyer interested in Snowflake, as the company agreed to purchase $250 million in Snowflake stock. Don’t be surprised to see more interest from large investors as the company nears its IPO date.

Impressive Growth

Perhaps the best reason why Snowflake could be the next big cloud stock has to do with its impressive growth. The company’s rapidly increasing topline growth stands out, as Snowflake reported year-over-year revenue growth of 133% to $242 million for the 6 months ending July 31st, 2020, and 121% year-over-year revenue growth in Q2. Snowflake also reported a net revenue retention rate of 158% in Q2, meaning that its existing customers are pleased with the platform.

Snowflake currently serves over 3,117 total customers including high profile names like Capital One and Adobe. The company’s average annual revenue per customer came in at $111,000 for the year ended January 31, 2020, which tells us that Snowflake’s products are intended for medium and larger enterprises. Investors will also be impressed to learn that gross profit and gross margin are increasing for the company.

A Flurry of Interest

Snowflake could end up being one of the biggest IPOs of the year and has the potential to become a true leader in cloud data services. The company is expected to offer 28 million shares priced between $75 and $85 per share. Although an IPO date has not been announced, it’s likely that Snowflake will go public in September or October after filing for an IPO in late August. This is definitely a company for tech investors to watch going forward. Make sure you look over the company’s SEC filing as part of your due diligence if you are interested in adding shares in the future.

 

Companies Mentioned in This Article

CompanyBeat the Market™ RankCurrent PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Snowflake (SNOW)1.2$229.00+1.0%N/AN/ASell$175.00
Berkshire Hathaway (BRK.B)0.9$208.72-0.4%N/A22.86N/AN/A
salesforce.com (CRM)1.5$242.74+2.2%N/A94.82Buy$241.59
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