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Snowflake doubles in first trades after largest-ever software IPO

Shares in Snowflake doubled on their Wednesday trading debut after the largest initial public offering ever for a US software company, in the latest sign of Wall Street’s huge demand for cloud computing service businesses. 

The Silicon Valley company’s stock jumped more than 160 per cent above the IPO price to touch $315, sending the company’s market value to almost $90bn, based on the number of shares outstanding, before easing to $235 by lunchtime in New York.

Snowflake raised a larger than planned $3.4bn by selling 28m shares for $120 apiece, exceeding its targeted range of $100 to $110, which itself was increased by more than a quarter earlier this week.

The company’s market value on Wednesday reached seven times the $12.4bn valuation achieved in its most recent fundraising round in February.

When trading began on Wednesday, the IPO immediately created a huge publicly listed company in the cloud software industry that was more than three-quarters the size of IBM and six times the size of Slack, the work productivity company that listed last year.

“There’s a certain fear of missing out in hot tech stocks and high tech stocks that will drive valuations and price,” said Adam Ronthal, a research vice-president at Gartner.

The offering is the biggest of the year and the largest in the US since Uber’s $8.1bn flotation in May last year, according to Refinitiv, the data provider. VMware, the cloud computing company majority owned by Dell, previously completed the largest software IPO in 2007.

Snowflake has attracted investors with a fast-growing base of customers for its data warehousing product, which allows users to analyse data across multiple remote storage providers such as Amazon Web Services.

The company’s revenue grew 121 per cent in the second quarter from the same period last year, and it boasts high “net retention” numbers, which measure customer loyalty.

Like many tech start-ups, Snowflake has burnt through cash to acquire market share, recording net losses of $348.5m on revenues of $264.7m in its most recent fiscal year.

The IPO gained a boost last week after Warren Buffett’s Berkshire Hathaway and Salesforce agreed to each purchase $250m in stock alongside the flotation. Berkshire purchased an additional $320m from Bob Muglia, the company’s former chief executive.

Frank Slootman, Snowflake’s current chief executive, previously led the tech companies Data Domain and ServiceNow at the times of their IPOs.

The venture capital group Sutter Hill Ventures is set to reap the largest rewards from the company’s listing, owning more than 20 per cent of its shares before the offering.

Snowflake’s listing is further evidence of the surging demand for tech companies benefiting from the shift to remote working. The BVP Nasdaq Emerging Cloud index, which tracks cloud software companies, has gained 60 per cent this year, more than doubling the returns of the broader tech-heavy Nasdaq index.

Gartner’s Mr Ronthal said Snowflake could face difficulties defending its market position against larger data warehousing competitors such as Amazon and Google.

“They have a lot to offer and there’s a lot to like in the platform, but those multiples seem a little bit over the top for me,” he said.

Snowflake’s flotation comes during a busy week for IPOs, with a dozen companies prepared to join the US stock market.

Unity, a video game software company, could raise more than $1bn in an offering later this week, while Sumo Logic, another data platform, and JFrog, an Israeli software development company, are also planning listings.

Snowflake’s deal eclipses two listings in June that previously stood as this year’s largest: Royalty Pharma, which raised $2.5bn, and Warner Music, with $2.2bn.

The recent activity has pushed the amount raised in 2020 to the highest levels since 2014, on a year-to-date basis, according to Refinitiv. In that year Alibaba’s $25bn flotation set the record for the world’s largest.

Goldman Sachs and Morgan Stanley served as lead underwriters on Snowflake’s offering.

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