- IPO market seems to be springing back to life on rebounding equities and economic recovery hopes.
- Snowflake saw its shares doubling in value in stock market debut on Wall Street on 16th September 2020.
- The Company produced the largest software debut in the US market in 2020.
- Speculations are rife that Mr Warren Buffett’s stake in Snowflake drove substantial investors’ interest in market debut.
- The market appears to be capitalising on the growing demand for cloud-based analytics and remote working approach amidst COVID-19 era.
- Further support from the federal government to prevent mounting job losses can bode well for the US equity and IPO market in the near future.
While the IPO market went into a deep freeze in the first half of the year amidst COVID-19-induced fears, the market seems to be springing back to life on rebounding equities and economic recovery hopes. Tapping lucrative opportunity in the reviving IPO market, Snowflake has marked a bumper market debut on Wall Street, leaving the world in awe.
Founded in 2012, Snowflake is a California-headquartered cloud database company, which develops query optimization, data warehouses, database architecture, and parallelization solutions. The Company promises to consolidate the complex data of businesses into a single platform.
Snowflake saw its shares doubling in value in stock market debut on Wall Street on 16th September 2020 (Wednesday). The Company raised about USD 3.4 billion during its listing on NYSE (New York Stock Exchange), producing the largest software debut in the US market this year.
Shares of Snowflake opened at USD 245 on Wednesday, more than double of its USD 120 offering price. Consequently, the shares closed the trading session 111 per cent up at ~USD 254, valuing the Company at over USD 70 billion. However, Snowflake’s shares dipped by 10.4 per cent on Thursday to USD 227.5, giving back some of the gains.
Snowflake’s IPO surpassed that of Royalty Pharma, which was so far the biggest IPO of the US market in 2020. In June this year, Royalty Pharma raised around USD 2.2 billion by selling 77.7 million shares on NASDAQ.
Strong Backing by Warren Buffett’s Berkshire Hathaway
Prior to the IPO, both Salesforce Ventures and Warren Buffett’s Berkshire Hathaway agreed to purchase USD 250 million worth of Snowflake’s shares at USD 105 per share.
As at the start of Wednesday, Berkshire held about USD 730 million of Snowflake’s shares, which subsequently swelled to USD 1.55 billion at market close. The surge in the value of Snowflake’s shares in market debut increased Berkshire’s stake by over USD 800 million on Wednesday.
Warren Buffett’s substantial stake in Snowflake took the world by surprise, as the legendary investor refrains from betting big on young technology companies and IPOs. The Oracle of Omaha has not invested in a newly listed US firm since the IPO of Ford in 1956.
Speculations are rife that Mr Buffett’s out of character move drove substantial investors’ interest in Snowflake’s IPO.
Market Punting on Snowflake’s Growth Prospects
Experts believe that the market overlooked Snowflake’s losses, which doubled to nearly USD 348.54 million during the financial year ended January 2020. Instead, the market seems to be punting on the growth prospects of its cloud data platform amidst the rise of data disruption economy.
Moreover, one cannot neglect that while Snowflake’s losses multiplied in FY19, it produced a triple-digit growth in revenue during the financial year. The Company reported a revenue of USD 264.7 million (175 per cent up) in FY19 and USD 242 million (133 per cent up) in 1H 2020.
The market appears to be capitalising on the growing demand for cloud-based analytics and remote working approach amidst COVID-19 era. The provision of data exchange and data sharing services in a secure way at minimal cost seems critical for Snowflake on its road to competitive advantage.
Outlook for the IPO Market
Investors are now closely eyeing the following companies that are expected to make their debut on Wall Street next week:
Though numerous proposed IPOs pulled the plug in 1H 2020 amid virus crisis, the market seems to be gathering momentum, with about seven floats expected on Wall Street by September 2020 end. The outlook for the remainder of 2020 needs to be closely monitored amidst uncertainty surrounding global economic growth, business valuations, vaccine development and duration of virus containment.
With volatility levels trending down and equities rebounding, the market appears to be adaptable, resilient and supportive for IPO activities in the months ahead, especially in technology, pharmaceuticals and life science sectors. In other words, companies withstanding the economic downturn spurred by COVID-19 seem to be sitting on a gold mine.
In the short-to-medium term, further support from the federal government to prevent mounting job losses can bode well for the US equity and IPO market.
There is no investor left unperturbed with the ongoing trade conflicts between US-China and the devastating bushfire in Australia.
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