The market for initial public offerings was quiet during the week ahead of Labor Day and the following week, but now there are nearly a dozen IPOs coming to market. Perhaps the hottest IPO of all is coming from Snowflake, under the New York Stock Exchange ticker SNOW.
There are many issues to consider about a so-called hot IPO, but one major consideration is whether the IPO is getting too hot to handle. With an IPO price range that has already risen to $100 to $110 per share, is Snowflake becoming too hot?
This Silicon Valley company offers cloud-based data management services to business, and it is going to have Berkshire Hathaway Inc. (NYSE: BRK-B) as an investor in the company. Most people do not think of Warren Buffett and his team as an early investor, but that’s the case here. Salesforce.com Inc. (NYSE: CRM), now a Dow Jones industrial average component, is also investing. Each company invested $250 million that also will close at the IPO timing.
Snowflake has been reported in multiple locations as seeing its price range rise. Just last week the price range was indicated as $75 to $85 per share. The syndicate firms have touted that demand for the stock is quite high, and the 28 million shares are currently expected to price up above the latest range from SEC filings.
Many companies have been able to come public with mere business plans and with hopes and dreams, but no real operations to speak of. Snowflake has a stellar pedigree of companies behind it, as well as what is considered to be a top-notch management team and backers, and the company has been posting over 100% revenue growth. There is literally nothing to dislike here, other than those darned valuations could come into play The valuation at $120 would be nearing $30 billion, and that is more than twice as much as a $12 billion valuation that was reported for a funding round earlier in 2020.
With nearly $80 billion having been raised in IPOs in 2020, the tech wave may be among the busiest for all these cloud companies that have been seen in the past 20 years.
Revenue rose a whopping 174% from the prior year in its latest fiscal year (January end), but the company is not yet profitable. As of the second quarter, it was still running at 121% revenue growth at $133 million for the quarter alone. The company counts 3,117 customers and 56 of those are considered to be the prized $1-million-plus level.
Even if you double the revenues and add growth on top of a $600 million revenue run rate for added growth and valuations, a $30 billion valuation is still going to raise at least some eyebrows from those investors who are not willing to pay up for massive growth at any price. Then again, some investors just do not care because they are paying up for what a company’s position can be in 2025 and beyond.
Goldman Sachs and Morgan Stanley are the lead underwriters in the syndicate, but there are many others as well. JPMorgan, Allen and Citigroup are also listed as lead book-running managers. The book-running managers for the proposed offering are listed as follows: Credit Suisse, Barclays, Deutsche Bank, Mizuho and Truist Securities. Another list of firms was also included in the syndicate: BTIG, Canaccord Genuity, Capital One Securities, Cowen, D.A. Davidson, JMP Securities, Oppenheimer, Piper Sandler, Stifel, Academy Securities, Loop Capital, Ramirez and Siebert Williams Shank. If that is not a large syndicate, then nothing else is either.
It is not possible to know how high the actual pricing will get, and it’s impossible to know where the IPO actually can open up for trading. All that is obvious here is that this is definitely a hot IPO.