What’s all the rave about Snowflake?

Snowflake Inc (NYSE: SNOW) debuted on the stock market and brought along with it something of a snowstorm. The highlights:

1. It was the biggest U.S IPO of the year (so far)
2. The largest-ever IPO for a software company
3. Its shares more than doubled and the company attained a market value of $70 billion after its first day of trading.
4. Snowflake is more valuable than Uber Technologies Inc, Dell Technologies Inc and General Motors Co.

These are applause-worthy stats for a company that was founded only eight years ago.

Let’s dive a little into what Snowflake does

Snowflake is a cloud-data warehousing company, providing businesses with an integrated data management system. It provides support for data engineering, data warehousing and data science. It makes it easier and cheaper for businesses to analyse data that has been stored away on the cloud- including the massive datasets needed to train machine learning algorithms. Snowflake is interesting because it offers a way for companies to run their software on various cloud platforms be it Amazon, Microsoft or Google. This feature gives it a chance to compete with some of these bigger names in the industry. As customers move toward a multi-cloud setup in which they can purchase cloud-computing service from more than one of the large providers, Snowflake can be used no matter which cloud product is running.

The firm boasts of about 3,100 customers and it is one of the software companies wrestling the hold of Oracle Corp on the database market – a market that generates about $55 billion in annual revenue. Snowflake competes with the likes of Amazon.com Inc, the leader in public cloud services, database stalwart Oracle Corp, Google and Microsoft.

Why did the stock have such a mammoth reception on the stock market? 

As for exact reasons, that could be difficult to ascertain but here are some plausible explanations as to why investors swarmed the stock.

Warren Buffett’s Berkshire Hathaway bought $250 million worth of Snowflake’s stock at the IPO price right before the company hit the market and also agreed to buy 4 million more shares at the IPO price from Snowflake’s former CEO after the IPO. This is noteworthy because an investment of this magnitude is unprecedented in the history of the Berkshire Hathaway equity portfolio. This is due to Warren Buffett’s renowned aversion to tech stocks and IPOs in general. So, the news of Berkshire Hathaway’s involvement in Snowflake would have driven anticipation for the stock.

Another thing is that investors appear to be actively seeking out stocks of companies that will remain relevant as the world evolves and can steadily outperform the markets. Daniel Elman, an analyst at Nucleus Research said that Snowflake’s IPO surge is a culmination of the broader success of cloud-based companies. The search is on for companies like Zoom Video Communications Inc, which has generated triple-digit year-over-year sales growth two quarters in a row., and Snowflake’s entry into the stock market could not have been better timed. The cloud industry is growing and expanding as cloud services are increasingly being regarded as vital to the modern and future structure of work.

Overall, it seems like Snowflake Inc is very much intent on maintaining this momentum and positioning itself as a formidable player in the cloud services industry. According to the CEO, Frank Slootman having an IPO was an important step in the company’s plan to disrupt the database market. Since the company sells to the largest companies in the world and also competes with the largest companies in the world,  it was necessary to do an IPO to raise the stature of the company in the marketplace.

The above reflects the opinions of only the writers who are associated persons of Bamboo Systems & Technologies Ltd. and do not reflect the views of Bamboo Systems & Technologies Ltd. or any of its subsidiaries or affiliates. They are meant for informational purposes only. They are also not research reports. The third-party information provided therein does not reflect the views of Bamboo Systems & Technologies Ltd., or any of its subsidiaries or affiliates. All investments involve risk, and the past performance of a security or financial product does not guarantee future results or returns. Keep in mind that while diversification may help spread risk, it does not assure a profit or protect against loss. There is always the potential of losing money when you invest in securities or other financial products. Investors should consider their investment objectives and risks carefully before investing. The price of a given security may increase or decrease based on market conditions, and customers may lose money, including their original investment.