Snowflake (SNOW) creates a record as the most successful software IPO ever; stock more than doubles

Data is at the heart of business innovation. Recognizing this trend, companies are seeking ways to transform their businesses by capturing, analyzing, and mobilizing data. The public cloud is becoming the new center of gravity for data and cloud adoption is accelerating rapidly.

Cloud services provider Snowflake (NYSE: SNOW) soared in triple digits on its first day of trading registering an increase of 112% from its listing price of $120. Shares of Snowflake hit a high of $319 yesterday with a trading volume of 36 million. The company that raised $3.4 billion through its IPO, created a record by becoming the largest software IPO ever.

Overview

The $70-billion market cap company was founded eight years ago and is headquartered in San Mateo, California. Snowflake’s Cloud Data Platform provides support to its customers in the areas of data engineering, data lake, data warehousing, data science, data applications, and data sharing.

Customers

Snowflake platform is used globally by organizations of all sizes across a broad range of industries. As of July 31, 2020, the company had 3,117 customers, increasing from 1,547 customers as of July 31, 2019. As of July 31, 2020, customers included seven of the Fortune 10 and 146 of the Fortune 500 companies. The number of customers that contributed more than $1 million in trailing 12-month product revenue increased from 22 to 56 as of July 31, 2019 and 2020, respectively.

Also read: Lemonade (LMND): A successful IPO of 2020

Opportunities

Snowflake estimates the addressable market opportunity for its Cloud Data Platform is approximately $81 billion as of January 31, 2020. According to IDC, the markets for Analytics Data Management and Integration Platforms and Business Intelligence and Analytics Tools, are expected to have a combined value of $56 billion by the end of 2020 and $84 billion by the end of 2023. Snowflake believes that this opportunity is substantial and largely untapped.

Risks

Even though the company has registered revenue growth consistently, like many other IPOed companies, Snowflake has incurred net losses in each quarter since its inception. The company’s net loss expanded to $348.5 million for the fiscal year ended January 31, 2020 from a loss of $178 million in the prior fiscal year.

Snowflake faces competition from well established cloud players, including AWS, Azure, and GCP and also from less established or emerging players in the areas of cloud and data solutions.

Q2 results

In the second quarter of 2021 ending July 31, 2020, Snowflake’s loss narrowed to $77.6 million from $93.4 million a year ago. Revenue for the second quarter 2021 jumped 121% year-over-year to $133.1 million. Product revenue, which represented 94% of total revenue, soared 117% to $125.2 million, in the recently ended Q2.

Impact of COVID-19

Snowflake had experienced a modest adverse impact on certain parts of its business following the implementation of shelter-in-place orders to mitigate the outbreak of COVID-19 and expects this to continue. These include a lengthening of the sales cycle for some prospective customers and delays in the delivery of professional services and training to the customers.

On the positive side, the company expects an increase in the consumption of its Data Cloud platform by existing customers. Also, the company has experienced slower growth in certain operating expenses due to reduced business travel, deferred hiring for some positions, and the virtualization or cancellation of customer and employee events.

JFrog IPO

Israel-based JFrog (NASDAQ: FROG), another software company that debuted yesterday, also got the market’s attention. JFrog priced its 11.6 million shares at $44 a share, which was above the estimated range of $39 to $41 and raised $509 million. FROG stock ended up 47% yesterday.

Shares of Snowflake and JFrog were trading down about 6% and 5%, respectively, in the pre-market trading hours today.