Snowflake (SNOW) will go public today. The data warehousing company will be the biggest IPO of the year and it has gotten a lot of attention lately. Salesforce and even Berkshire Hathaway will both be buying 3.1 million stocks, good for $500,000,000 in total. They got to buy them for $80 per share.
This week, the company’s underwriters have upped the price range from $75-$85 to $100-$110, which is an increase of 31% due to greater demand. They then decided that this was still not good enough so the stock will go public at $120 per share.They reportedly increased share price to $180 just an hour before trading.
Can this be justified? Maybe. Their revenue increased with 130% in the first half of the year yoy. They’re on track to bring in $500 mln in revenue this year. We all know that investors get really excited by cloud companies and pay a hefty premium for them, because they keep generating revenue during lockdowns and high growth rates are expected to continue over the coming years.
Now, here’s the quote we’ve all been waiting for:
“For the investor, a too-high purchase price for the stock of an excellent company can undo the effects of a subsequent decade of favorable business developments.”
The irony is that Buffet himself is involved in this highly priced IPO. Yes, we all know that the company will probably do great over the next few years. The data warehousing industry will have a size of around $35 bln in 2025. That’s just a little bigger than the current market cap of Snowflake($33.3 bln). Last February, they were only valued at $12.7 bln. Their PS-ratio would be around 100. What you really should be asking yourself is: how much of their expected growth is already priced in? Are you willing to pay 50% more than that institutional parties had to?
I’m not saying whether to buy in or not, I just wanted to give this piece of advice by the Oracle to you. Never buy out of FOMO and good luck investing y’all.
EDIT: Reuters reports that it will open at $235/share. That would put their market cap at $65 bln.
To add one of Buffet’s quotes: “IPO means It’s Probably Overpriced”
EDIT2: SNOW OPENED AT $245, CURRENTLY UP 130%
Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence or consult your financial professional before making any investment decision.