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Snowflake IPO Comprehensive Stock Analysis (SNOW) with the Most Up-To-Date Information Available - YouTube
Channel: Healthy, Wealthy, and Wise
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the time has finally come snowflake is
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going public this week
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and today i'm going to take a deeper
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look into the company to see if the hype
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is warranted
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we'll look at the background of the
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company dig into the financials
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and i'll give what i feel are the
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reasons for and the reasons to be
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cautious
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in buying the snowflake stock if you've
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been waiting for the snowflake ipo
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this video is for you
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[Music]
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welcome to the healthy wealthy and wise
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channel where we talk about all the big
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and not so big companies going public
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whether it's by traditional ipo
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a spac or direct listing for those of
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you new here
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my name is kevin and i want to formally
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invite you to join the community
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feel free to watch the video first and
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maybe check out this week's episode of
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ipo this week
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our featured program where i cover all
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the companies scheduled to go public
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each week
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and then see if this is the content
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you're interested in if it is
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joining is free you just gotta press
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that little red subscribe button
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and to everyone in the community welcome
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back i know that the snowflake ipo has
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been the ipo that i've gotten the most
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questions and comments on
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so i hope you like and find this video
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helpful from comments in previous videos
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i know there's a lot of thoughts out
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there on how the stock is expected to
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price
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so i'd love to hear your thoughts on
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where you think the stock will close on
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that first day of trading
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please let me know in the comments as a
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quick reminder
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i'm not a financial advisor and while
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this video is meant to be informative it
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should not be seen as a recommendation
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for you to take any action on the
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companies covered
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you should always do your own research
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or consult with your own financial
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advisor when making any investment
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decision
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okay let's get our snow shovels out and
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dig into this company
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for some background snowflake is a
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cloud-based data warehousing company
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that was founded in 2012 in california
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with a vision of creating a data
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connected world where organizations have
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seamless access to explore
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share and unlock the value of data at
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the most basic level
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is technology allows companies to store
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and manage data in the cloud
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which we know has been a huge and
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important growth area for microsoft and
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amazon
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the company's founders were three
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experts in data warehousing
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with two of them coming from tech giant
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oracle and because of the founders love
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of snow sports
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they decided to name the company
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snowflake for two years the company
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operated in secret until coming out to
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the world after appointing former
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microsoft executive
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bob muglia a ceo in that same year
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2014 is when the company first started
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selling their platform
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so let's talk a little bit about their
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platform and product
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the company is pioneering the data cloud
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an ecosystem where snowflake customers
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partners and data providers can break
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down data silos
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and derive value from rapidly growing
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data sets in secure
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governed and compliant ways to meet that
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objective
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their cloud native architecture consists
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of three independently scalable layers
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across storage
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compute and cloud services the storage
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layer ingests massive amounts and
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varieties of structured and
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semi-structured data
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to create a unified data record the
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compute layer provides dedicated
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resources to enable users to
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simultaneously
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access common data sets for many use
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cases without latency
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and then the cloud services layer
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intelligently optimizes
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each use case's performance requirements
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with no administration
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this architecture is built upon three
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major public clouds and ones you've
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heard of and amazon web services or aws
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microsoft azure in the google cloud
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platform
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additionally they run across 22 regional
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deployments around the world
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these deployments are interconnected to
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create a single cloud data platform
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delivering a consistent global user
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experience the company has grown quickly
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which is why investors have eagerly
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awaited news of the company filing its
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ipo paper since february
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and then just last month they finally
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did when they announced that the company
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intended to list on the new york stock
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exchange under the ticker snoww
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and there actually been a lot of
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interest for some time as this company
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has raised around one and a half billion
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dollars in venture financing prior to
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going public
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currently snowflake has over 3 100
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customers as of july 31st of this year
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including seven of the fortune 10 and
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146 of the fortune 500 companies
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to name some of the biggest ones they
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have capital one experian
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bank rate sony office depot doordash
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instacart adobe docusign micron
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and dropbox so you can see that they're
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customer bases across many industries
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let's go back to february for a second
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it was no surprise that snowflake made
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its intention know that they were
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looking to go public this year
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because just months earlier the company
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named frank slootman's ceo
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slootman is somewhat of a corporate star
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due to his reputation for making money
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on taking private companies public
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as i've mentioned before in other videos
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he previously served as chairman of
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servicenow
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and before that he was also successful
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in taking data domain public in 2007
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before selling it for big money just two
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years later
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there's also one other thing i want you
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to keep in mind about february and that
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is when they were reported to have had
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their most recent fundraising round
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at that time snowflake was valued at
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about 12.4 billion dollars
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keep that number in mind because we'll
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come back to it in a bit
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back to our shovels as we dig some into
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the financials the company released in
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their s1 filing
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let's start with revenue growth for the
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fiscal year's end of january 31st for
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both 2019 and 2020
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their revenue grew from 96.7 million
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dollars in 2019
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to 264.7 million dollars in 2020
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representing year-over-year growth of
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174 percent
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which is obviously eye-catching and for
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the six months ended july 31st for both
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2019 and 2020
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revenue grew from 104 million dollars to
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242 million dollars
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representing year-over-year growth of
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133 percent
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and if you're wondering if there is even
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more potential for growth out there
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well there apparently is according to
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idc
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the markets for analytics data
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management integration platforms
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business intelligence and analytics
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tools which is where snowflake operates
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will have a combined value of 56 billion
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dollars by the end of 2020
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and 84 billion dollars by the end of
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2023
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and for an industry the data warehouse
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as a service market is predicted to grow
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at a 29.2 percent compound annual rate
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through
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2030. so there should be a lot more
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growth to come
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in fact according to bloomberg
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intelligence that's because they state
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only 30
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of data analytics is now performed in
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the cloud putting snowflake in a great
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position to take share from the legacy
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on premise vendors
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from the filing snowflake reported a
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dollar based net revenue retention rate
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of 158 percent for the period ended july
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31st 2020.
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you can take this as a positive response
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to their platform from their current
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customers
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in gross margins are continuing to
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improve as well again for the fiscal
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year's end of january 31st 2019 and 2020
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the gross margin improved from about 46
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to 56 percent
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and then for the six month end of july
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31st for both 2019 and 2020
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the gross margin grew from 49 to almost
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62 percent
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again nothing to complain about here now
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keep in mind that the company is still
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not profitable with a net loss of 178
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million dollars from the fiscal year end
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of january 31st 2019
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ballooning up to 348.5 million dollars
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for the fiscal year end of january 31st
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2020.
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so while revenue is up is still not
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overcoming an overall total operating
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loss of 506 million dollars for the
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fiscal year 2020
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resulting in it not being profitable so
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obviously this is the not so good news
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part of the financials
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the operating loss can be broken down
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into 294 million dollars spent on sales
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and marketing
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105 million on research and development
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and another 107 million on general and
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administrative expenses
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obviously there's a big push on
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marketing and sales based on the numbers
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that snowflake is reporting
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now when looking at the past two
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quarters we do see that they are
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beginning to burn less cash and that is
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something they want us to be aware of as
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we approach the initial public offering
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was part of that due to the pandemic
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slowing everything down or maybe even a
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little window dressing as they ready to
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go public
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whatever the case there is no question
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that they are looking at the ipo as an
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opportunity to obtain more capital
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so that they can continue growing
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exponentially while still being
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unprofitable
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from the filing snowflake states they
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plan to use the net proceeds of the ipo
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for general corporate purposes
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including working capital operating
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expenses and capital expenditures
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the company also will have the standard
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180-day lock-up for pre-ipo investors
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and insiders
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they also do not plan to offer a
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dividend in the foreseeable future
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which is typical for most growth
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companies at their stage
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in the amended filing that came out last
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week snowflake stated plans to raise
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over 2.2 billion dollars by offering 28
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million shares
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at a price range of 75 to 85 however
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before i recorded this video on monday
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the company revised its pricing
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expectations upwards
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to a range of 100 to one hundred and ten
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dollars which would bring in over two
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point nine billion dollars at the
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midpoint price of one hundred and five
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dollars
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and at that mid point of the proposed
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range snowflake would command a fully
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diluted market value of 37 billion
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dollars
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i can't say that i'm surprised that they
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increased the amount of money they were
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looking to raise
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but i thought they might have done that
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by selling more shares instead
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versus increasing the share price into
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the triple digit range
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either way at pricing snowflake would be
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the largest ever ipo of a software
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seller
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both in terms of proceeds raised in ipo
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market cap
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where it became more interesting is when
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snowflake first noted last week
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quote immediately subsequent to the
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closing of this offering
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in subject to certain conditions of
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closing as described in the section
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titled concurrent private
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placements each of salesforce ventures
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llc
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and berkshire hathaway inc will purchase
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250 million dollars of our class a
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common stock
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from us in a private placement at a
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price per share equal to the initial
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public offering price
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end quote and then reading along it said
[578]
that berkshire hathaway had agreed to
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purchase over 4 million more shares of
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snowflake stock
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in a secondary transaction at a price
[585]
per share equal to the initial public
[587]
offering price
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so what this means is that the company
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plans to raise an additional 500 million
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dollars from salesforce ventures in
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warren buffett's berkshire hathaway
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and then with that secondary transaction
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berkshire will end up having much more
[600]
than the 250 million dollars invested
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from the first transaction
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that was an intriguing development to
[605]
the snowflake ipo
[607]
the ipo is expected to be priced on
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tuesday september 15th
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with public trading to begin on
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wednesday the 16th i'm sure it will be
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quite the spectacle on all the business
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news channels
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so what do i personally think about this
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ipo well i'm recording this before the
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ipo is officially priced
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so i don't have the exact number but
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assuming it is in the 100 to 110 dollar
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range as expected
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it's going to be a pricey company to buy
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into now price is in value
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but when you look at where the company
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was valued at in february which as i
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said earlier was at 12.4 billion dollars
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it's going to be more than tripled and
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you have to ask yourself is that new
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valuation warranted just seven months
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later
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i think this is where all the hype in
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the company has help snowflake
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as investors we look at ipos as
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successful when a company is priced
[650]
and then once it starts trading the
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price goes up and that is good for
[653]
investors
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but for the company while it is good
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from a perception point of view and that
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it shows people want their stock they
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also realize that they actually left
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money on the table
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i'll use an example to help clarify what
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i'm saying let's say a company is priced
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at their ipo at twenty dollars
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where 100 million shares are sold to the
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institutional investors and banks
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resulting in them having raised two
[673]
billion dollars and then trading starts
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and the stock closes at 40
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again that's great for investors but the
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company
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who already sold the shares at 20 could
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have had an additional 2 billion dollars
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have the underwriters price the company
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at forty dollars
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the price that it would have been able
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to get on the market it's one of the
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reasons some companies
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usually ones that already have good
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funding will decide to do a direct
[695]
listing versus a traditional ipo
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and now that the rules have changed with
[699]
direct listings being able to raise
[700]
money
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we might start to see more of them time
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will tell
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okay so why am i bringing this up well i
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feel when it comes to this ipo
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snowflake has some leverage in the
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pricing due to the massive amount of
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hype out there
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and then when you announce berkshire
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hathaway is interested and willing to
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pay at the midpoint of the proposed
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range
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i'm sure in consultation with our lead
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underwriters goldman sachs
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they determined that they could price it
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at a point to make money at a level
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where they won't feel shortchanged like
[726]
an example i just gave
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and yet still generate positive
[730]
publicity for investors
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although there is no doubt that the
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retail investor crowd was disappointed
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at the proposed price range
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and i can tell that just from comments
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on this channel that some of the
[740]
enthusiasm has been dampered
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but since most retail investors aren't
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able to get in at the ipo price anyway
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even if it was set for 40 dollars it
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could have tripled right out of the gate
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it will be interesting what happens at
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the actual ipo pricing to see what the
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actual price
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ends up being and then where it opens as
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well as it ends on the first day of
[757]
trading
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while i would like to see the company
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start to reduce its losses more
[762]
substantially in the coming year
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the fact that they are still fairly
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young in their development and having
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major growth in a market that is still
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growing
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are all major pluses for me aside from
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the operational losses
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the other significant caution area to
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consider is competition
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and snowflake has some with big names
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aws redshift
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google bigquery and microsoft synapse
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the interesting dynamic to me is that
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while snowflake competes
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with the big names it is also a customer
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to them because as i mentioned earlier
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their platform runs on the clouds built
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from those same companies
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so from a business risk perspective
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those companies could decide to charge
[797]
snowflake higher amounts in order for
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them to be able to undercut the company
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and price their own data cloud services
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cheaper now there's no indication that
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will happen anytime
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soon but it is a possibility however
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knowing that amazon microsoft and google
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don't have a monopoly on the cloud
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because of each other being there
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they're probably not going to price them
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in a way that would drive snowflake to
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one of the other two companies
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as i've said before in another video
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snowflake needs to help those big three
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companies continue to act more like
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partners than us competitors
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at this time this dynamic of being
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customers of their competitors
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along with the operating losses wouldn't
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stop me from buying the company
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the recent revenue growth performance
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and prognosis for further growth
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is very enticing and supersedes those
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concerns for me the one thing that could
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stop me is the price that i can get it
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for
[842]
no matter what the ipo is priced at it's
[844]
hard to say what the stock will go for
[845]
once it hits the market
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with the proposed pricing range and how
[849]
that will drive up the valuation from
[850]
where it was just six or seven months
[851]
ago
[852]
make no mistake this ipo is pricey
[855]
so there are two thoughts on this one is
[858]
that if i
[858]
or you believe in snowflake long term
[860]
and we're willing to hold it long term
[862]
then it might make sense to buy it at a
[864]
premium however
[865]
how much of a premium is the question a
[868]
little premium could still make sense in
[869]
the long run
[870]
a huge premium maybe not so much the
[873]
other thought is to only pay what you
[875]
believe it's worth right now
[876]
and that can be tricky for this company
[878]
because of not only the hype
[880]
but we don't have the more stringent
[881]
reporting of financial data
[883]
that is required to public companies as
[885]
of yet
[886]
however more than likely if you take
[888]
this approach you will not buy in
[890]
because it will be hard to justify
[892]
whatever price it will trade at
[894]
now anyone that's watched me for a while
[896]
knows i won't tell you what to do or
[898]
what i expect the price to be
[899]
since i don't have the ability to
[901]
predict the future if i was born with
[903]
that talent
[904]
i would definitely share that
[905]
information with my community
[907]
the most i strive to do for you is to
[909]
pull in the information and try to share
[910]
it with you in an easy to
[912]
understand manner and share some of my
[914]
own personal thoughts on it and hope
[915]
that you find value in that
[917]
at the end of the day i always trust you
[919]
to know what's best for you to do with
[920]
your money
[921]
based on your personal thoughts and
[922]
situation now we wait to see where it's
[925]
priced and where it trades
[926]
again let me know in the comments what
[928]
price you think it will close at
[930]
at the end of that first day of trading
[932]
i'm sure we'll be talking more about how
[933]
snowflake stock performed out of the
[935]
gate
[936]
anyway i hope you enjoyed the video and
[938]
found it helpful
[939]
and if you did please push that like
[941]
button and share with your friends and
[943]
on any of your social media sites and
[944]
forums you're on
[946]
it's really important and is a way for
[948]
you to help me grow the channel
[949]
and the more it grows the more resources
[951]
i'll put towards it i already have a few
[953]
ideas
[954]
for that and again if you're new to the
[956]
channel or just an occasional visitor
[958]
i hope i won you over and you decide to
[960]
subscribe and join the community
[962]
we'd love to have you on board with that
[965]
thank you for watching
[966]
and until next time have a great day
[982]
[Music]
[989]
you
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