Why Snowflake’s IPO is Attracting Buffett and Salesforce

Author: Tim Phillips

September 9, 2020

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Snowflake, a data-based cloud warehousing platform, in late August released its S-1 filing, which is effectively its intent to go public. 

Yesterday, it was also revealed that Warren Buffett’s Berkshire Hathaway Inc (NYSE: BRK.B) and CRM specialist Salesforce.com Inc (NASDAQ: CRM) would be taking stakes in the soon-to-be-listed firm via private placements of US$250 million each.

Tim’s Take:

Snowflake is going to be a beast of an IPO. There’s no other way to put it when talking about this cloud-native data platform. It’s expected to go public either later this month or in October.

The company said it expects to price shares at between US$75-85, raising up to US$3.24 billion.

The beauty of what Snowflake offers is that it gives enterprises everywhere the ability to seamlessly move their computing processes to the cloud.

What’s even more unbelievable is that Snowflake is growing revenue at a triple-digit rate. Yep, you read that right. 

In its latest quarter, the company grew revenue at a stonking 121% year-on-year and boasted a net retention rate (NRR) of 158%. For context, an NRR in the region of 120-130% is already considered admirable for software firms.

Investors should remember, though, that the company is still loss making. It recorded a US$171.3 million loss for the six months ending 31 July 2020. However, that was a marginal improvement from the US$177.2 million loss in the same period in 2019. 

Yet with a gross margin of an already-impressive 66%, the company clearly has room to expand margins and turn profitable in future. I’m not surprised that Mr Buffett and Salesforce are getting in on the ground floor with this company.

Snowflake offers a platform-agnostic data warehousing solution that can work across the cloud – utilising either Amazon’s AWS, Microsoft’s Azure or Google Cloud.

Not all plain sailing for Snowflake

Although Snowflake actually considers the big three cloud infrastructure providers as clients, they will also become competitors so that’s something to watch out for after Snowflake lists. 

However, given the other three are hawking their own wares and aren’t offering solutions across the various cloud platforms means Snowflake, I believe, has a decent edge.

The cherry on top is Snowflake CEO Frank Slootman. Slootman took software firm ServiceNow Inc (NYSE: NOW) public and oversaw a 10-fold increase in its revenue during his tenure there.

The man has a track record of successfully running big tech enterprises and with investors such as Buffett and Salesforce backing up the firm, I expect big things for Snowflake in future. 

I rarely get that excited about IPOs but this is the first one in a while, from a long-term investment perspective, that I’m bullish on.

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About the Author: Tim Phillips

Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth. He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. In his spare time, Tim enjoys running after his two year-old son, playing football and practicing yoga.