Stock market blizzard: Snowflake set for £33bn IPO as valuation bubble keeps on expanding

Cloud data warehouse slinger Snowflake has set an IPO price valuing the company at $33bn, making it nominally worth more than US retailer Best Buy or UK supermarket chain Tesco. The eyewatering valuation comes two months after the firm was said to be mulling a share offering that would have valued it at $20bn, in a …

[Anonymous Coward]

That valuation is positively absurd. If I were a Snowflake employee, I'd be ticking off the days until the lockup ends and then plan on selling every share I could. Yes their growth figure is spectacular, but their loss figures are _off the charts_ and their product is no longer in any way, shape or form unique. There's enough of the crew at Snowflake who are ex-Cloudera* who will know what it's like to go from hyper-unicorn to tremendously unfashionable in the space of four quarters as someone else does your trick but shinier. If they've got any sense they'll all sell up, buy their new boat and resign to live on the beach before the bubble bursts and the CFO starts cutting costs back to the bone.

*Who are a cautionary tale/good comparator in a number of ways. Same sales play (snowflake even nicked their "data cloud" language), same target market, very similar technology stacks, very similar architectural approaches. Cloudera have three times the revenue, positive cash flow and are still clocking in dependable growth every quarter despite some disastrous recent business decisions. They're apparently worth _one tenth_ of what Snowflake will open at, because they only do 10-15% of their business on the cloud. The market is _insane_.

[Anonymous Coward]

It is a ridiculous valuation, but people are preparing to spend vast money on snowflake. We're a small company doing <data sort of things>, and we have a strategy for unifying our data lakes, ingestion and export in to something based around snowflake. Our expected billing to them will be in the seven figures range within a couple of years apparently.

£10bn maybe, £33bn seems way over hyped.

[Anonymous Coward]

It has climbed significantly since the article was written. We're looking at an opening price in the $200 range, leading to a paper valuation of $50-60Bn. This is for a company with a $280M revenue and a $350M loss.

That's a bubble. Not just a bubble. An insane, pants on head bubble. It was insane at $100. To get any kind of returns on a price of $80 implies the company getting to 25+% free cash flow inside of five years. That would be hard. A price of $120 is near impossible. A price north of $200 is a bonfire of someone else's money.

> Our expected billing to them will be in the seven figures range within a couple of years apparently.

This is as much a risk as it is a positive. Vendors can enjoy runaway growth while they're still acquiring customers or when those customers are still not spending very much money. Snowflake meet both of those criteria - their customer count is accelerating but they're not spending very much per customer. That's why they're spending $350M a year to make $250M a year. They need to both maintain that growth rate _and_ cut their costs by an order of magnitude, and do that while all their customers suddenly look at 7-8 figure bills for what is fundamentally just a sql database as a service.

[J. Cook]

... Does this mean that it's Special?? (Snowflake, special.. I'll get me coat.)

[Anonymous Coward]

This is where I'm very wary of companies like this. If the tech stack isn't 100% open you've set your company up for a massive fall when the debt collectors come calling on all those loses your service provider is building up.

[Anonymous Coward]

Not particularly technically similar.

You are over-bigging the similarities IMO. Not particularly similar to Cloudera, only in the sense that Hadoop was v1 of compute and store separation whilst Snowflake is basically the logical merger of that and the on-prem database.

There is a bigger difference in technology stacks where Cloudera have a load of open source projects held together with sellotape and bits of string. I'm not sure how much OSS code is in Snowflake because they do a damn sight better job of abstracting it from the user. Think of Snowflake as iOS and Cloudera is Symbian.

Snowflake is basically what Oracle should have become if Larry had less ego and more vision. Not surprisingly the big techie cheeses are ex-Oracle.

You're right about the valuation though - its absurd.

[Anonymous Coward]

AWS cloud database

Give me $1 billion, I'll repackage Amazon Web Services, my revenue growth will be fantastic, but erm, the losses will grow too, never mind that, look at the growth in my IPO estimated price range!

BUY BUY BUY! It'll be bigger than ENRON!

I'm wary of things that look like VC arbitrage.

[newspuppy]

small error on previous valuation

The story has an error:

"Just 18 months ago the San Mateo-based company was worth $1.5bn, according to an investment round." is off by a factor of almost 10.

from ( https://www.forbes.com/sites/alexkonrad/2020/02/07/snowflake-raising-at-12-billion-valuation/#2112a84f486a ) dated Feb 7, 2020,06:52pm EST the headline and story state:

Snowflake Set To Be Worth $12.4 Billion After New Funding, Making It One Of Tech’s Most Valuable Startups.

Not claiming any right/wrong... just the facts...

[AdamWill]

Re: small error on previous valuation

It might feel like it, but February 2020 is not 18 months ago. It's seven months ago.

The article was obviously referring to an earlier funding round.

[diodesign]

Confused

Eh? That Forbes article is from Feb 2020, which isn't 18 months ago.

Email [e-mail] if you think we've made an error.

C.

[Anonymous Coward]

Re: small error on previous valuation

If a VC buys one share at $300, then now its a VC funding round that values the company at $60 billion!

elReg was right, 18 months ago the VCs were buying at a valuation of $1.5bn. It doesn't matter that the VCs have done a few more rounds of pump since then. It doesn't matter that the company hasn't done anything to justify the pump. That's what VC's do, they pump and pump and pump and then dump at IPO. You just mixed up the pump levels.

IMHO this company is garbage. They resell Amazon cloud services with their skin. The only way more customers = bigger losses if they're selling that Amazon cloud at a loss. Their big selling point, "scalability" is the selling point they buy from Amazon cloud.

2000 online customers doesn't require a large sales force. So their sales force cost won't be the scaling cost.

The web site and software shell already exist, so that's not a scaling costs either.

The big scaling cost is Amazon cloud, you pay per use for that.

Hence the growing losses with growing customers. Losses of $175k per customer (348m/2000)! Those customers must be using a lot of AWS capacity that their Snowflake price doesn't cover!

This is a good time for an IPO though, lots of millionaires were given free bailout money and have nowhere productive to put it, and fools and their money are easily parted. So VCs are pumping anything they can for a quick sale before the bubble pops.

But this is a groupon, or a priceline, essentially selling a service at a loss for some sort of claim 'customer loyalty' which you can then somehow turn into a profit.

[Gordon 10]

Re: small error on previous valuation

To be fair to newpuppy - 2020 has felt at least 18 months long at this point.

[DS999]

No way Buffett is considering this

He would never buy a company that manages to lose more money than it collects in revenue. He wouldn't be interested at a tenth of the price.

That's obviously a very false rumor put out by someone hoping to hype the launch so they can sell their overvalued shares before the bubble pops.

[AdamWill]

Re: No way Buffett is considering this

Buffett's been kinda flailing for the last few years, though. Wouldn't be super against his recent record to belatedly decide it was time to throw a ton of money into hyped tech stocks at just the wrong moment and get burned.

[John Smith 19]

"He would never buy a company that manages to lose more money than it collects in revenue"

And he doesn't like companies whose revenue model looks like BS.

"hat's obviously a very false rumor put out by someone hoping to hype the launch so they can sell their overvalued shares before the bubble pops."

Sounds about right to me.

Everyone wants to claim Buffet is interested in their IPO, but he's been consistent the risk is rarely worth the reward he can't be bothered on the scale that Berkshire Hathaway operates at.

[Hawkeye Pierce]

Re: No way Buffett is considering this

Er no it's not a false rumour.

He bought $250m of stock at $105/share so is currently sitting on a very nice profit if he were to immediately cash out...

... which I would certainly do given my humble assessment of the company being **way** over valued.

(But yes, it is an odd purchase for him in more ways than one).

[amanfromMars 1]

The Straw that Broke the Camel's Back, and Killed the Golden Goose .... Virtual Quackery

With so many fantastic iterations of comic book narratives in play, which are neither extremely funny nor remotely helpful, gorging on the doozy that is not intelligently designed and always coincidentally sinks flagships and command battleships alike, is fair game, methinks .......... https://www.zerohedge.com/markets/trump-agrees-powell-much-higher-fiscal-stimulus-needed-and-why-could-crash-stocks

Now, boys and girls, who in the class still thinks there is no Magic Money Tree in existence benefitting just the Chosen Few in the Many extolling Modern Monetary Theory ..... Modern Monetary Theory ....... which others not included and systemically excluded from benefitting from The Magic Money Trees of the Chosen Few in the Many extolling Modern Monetary Theory realise is just an unjust postmodern take, and remake of that ages old fraudster favourite ..... Snake Oil.

And we all know, children, what happens to fraudsters and shysters. don't we? Yes, they get rubbed out by both the bad guys and the good guys, don't they, and everyone cheers and declares ........ Hooray, great job, a long time coming .... very well done ‽ .

Sadly though, there will be those retards who will not learn, for any number of crazy reasons, that valuable lesson which would save them rather than destroy them. But that's life as we know it , and as how It knows us.

[John Smith 19]

" Warren Buffet, who hasn't put money into an IPO since 1955, is said to be considering a flutter."

BS meter is redlining like a Geiger counter in the engine compartment of a Cold War era Soviet nuclear submarine.

So what's an speculators investors move here?

Long term hold expecting ongoing stock price increase?

Waiting for an actual dividend (with a PE ratio measured in centuries)?

Buy early and sell out quick to offload on the real mugs?

Or as the Snowflake CEO might put it "We want to be the new Autonomy*"

*Not an actual quote

[amanfromMars 1]

Re: " Warren Buffet, ...... is said to be considering a flutter." @JS19

Decisions, decisions, my kingdom for a decision, ... seems an APT [Advanced Persistent Threat] response to such farcical theatre, John Smith 19.

[Sorry, Will*, but it just had to be said, and indeed, it is surely to be expected if one believes if history repeats itself, and the unexpected always happens, how incapable must Man be of learning from experience.** although of course, because it is quirky humanity, there are also those who would believe sometimes history repeats itself. And sometimes it doesn't.***

* ....... William Shakespeare

** ...... George Bernard Shaw

*** .... Adam Curtis

Ok. Capiche? ...... Next week, .... Be Prepared for a Right Royal AI Buffeting ....... How things are simply made up and spread worldwide by media moguldoms in the service of systems that need them to share things made up by systems that need their services ....... and why such tricks needs to be done. Be sure to not miss it. It's a Great Games Changer.

[Keven E]

Re: " Warren Buffet, ...... is said to be considering a flutter." @JS19

"How things are simply made up and spread worldwide by media moguldoms in the service of systems that need them to share things made up by systems that need their services..."

The age of information<age of big data<age of information data... although increasing in quantity, certainly not in quality.

[julian.smith]

Buffet buys in to Snowflake

Where can I bet that Warren doesn't jump in?

His no IPO since 1955 record is set to continue

LMAO

[RyokuMas]

Typical...

Typical upstart snowflakes, thinking they're entitled to everything and getting all offended when they don;t...

[Anonymous Coward]

That valuation is just crazy.

We're talking about an almost 400-to-1 price to REVENUE multiple, much less an actual price-to-earnings multiple. And I have not heard anybody say that Snowflake's actual analytical offering is that great, its just that you can order it in the cloud instead of having your data warehouse on-prem.

[Ozan]

Question is Can I short at IPO?

[Bonzo_red]

With the shares now at around $220, I hope you didn't find a way.