By Corrie Driebusch
Snowflake Inc.'s shares skyrocketed on their first day of trading, giving the biggest tech IPO of the year a market value of $70.4 billion and feeding the recent bout of enthusiasm around initial public offerings.
Shares of the data-warehousing company closed at $253.93, more than double their IPO price of $120 and roughly triple what the company initially targeted a week ago for its offering. Just after the stock opened, it traded as high as $319. Wednesday's ascent means the company is now valued at more than five times the $12.4 billion valuation it notched in a private funding round in February of this year.
"Does this put pressure on us? Of course it does," Frank Slootman, Snowflake's chief executive, said about the company's soaring stock price. "It's a vote of confidence. But clearly as a management group and as an employee base we have to work very hard to deliver on it."
Hunger for growth in a low-interest-rate environment and a shift of favor toward technology companies have helped fuel significant demand for IPOs this year, and Snowflake's first-day performance is likely to add even more hype. Snowflake is one of the most hotly anticipated tech offerings amonfg software and cloud-data investors.
Snowflake's rise is also emblematic of the broader tech sector's run-up in 2020. The tech-laden Nasdaq Composite Index is up 23% so far this year, far outdistancing the gains in the S&P 500, even after a recent pullback.
"When you're in a recession, growth is hard to find. It's a scarce commodity. When you find something scarce, you're going to have to pay up," said Kevin Landis, chief investment officer of tech-focused Firsthand Capital Management Inc., which invests in public and private companies.
Like many startups to hit public markets, Snowflake isn't profitable, but it has grown rapidly. For the six-month period ended July 31, the company lost $171.3 million and had revenue of $242 million, which more than doubled from the year-ago period. Its loss for the fiscal year ended Jan. 31 nearly doubled to $348.5 million from the previous year, though revenue almost tripled to $264.7 million.
The first-day gains were a boon for two notable anchor investors in Snowflake -- Warren Buffett's Berkshire Hathaway Inc. and Salesforce.com Inc.'s investing arm, Salesforce Ventures -- which each poured $250 million into the company as it went public, buying shares at the $120 IPO price. Berkshire also agreed to buy an additional four million shares of Snowflake at the IPO price from an existing investor, Snowflake said in a filing, significantly upping the size of Berkshire's investment.
The initial public offering of 28 million shares raised roughly $3.4 billion for Snowflake, not including additional shares the underwriters are entitled to buy or the Berkshire and Salesforce investments. Snowflake said it plans to use proceeds to fund its operations and potentially make acquisitions.
Snowflake executives participated in a virtual bell-ringing ceremony to celebrate the start of trading, in what has become the norm due to the coronavirus pandemic. The stock didn't open for trading until roughly three hours after markets opened, taking longer than any other IPO in modern history to pair up orders and begin trading, according to the New York Stock Exchange, a sign of rampant demand.
Rick Bradt, portfolio manager for the Neuberger Berman Disrupters Portfolio, bought shares of Snowflake in the IPO. He said he expected the stock price to go up when it opened for trading, but hadn't anticipated it would rise by so much. Still, he said he can understand the jump.
"We're truly early on in a revolution in tech," he said. "We're in a world where big data is trying to figure out how big it can be."
Despite the IPO market going cold in the spring when the coronavirus pandemic hit with full force, companies going public in the U.S. had raised more than $78 billion in their IPOs through the end of last week, on pace for one of the biggest money-raising years for new issues since the tech boom of 2000, according to data provider Dealogic.
Mr. Landis of Firsthand Capital said he sees some similarities between the market now and the tech bubble two decades ago, but he doesn't expect another reckoning. The largest companies in the world have ballooned in valuation, making a debut like Snowflake's less crazy. There is still room for Snowflake to grow, he said, adding that among investors, "There's a rethinking of what a company can be worth."
He is familiar with hype around tech stocks: His Silicon Valley-based firm's tech fund soared during the tech boom and then suffered when the bubble popped.
Firsthand didn't buy shares of Snowflake in its IPO, viewing it as a bit too popular, he said, adding that he prefers to purchase companies that fly more under the radar. Otherwise, they risk highflying prices like that of Snowflake.
"Right now, there's really not enough growth to go around," he said.
Mr. Slootman, Snowflake's chief executive, is no stranger to the IPO process. He successfully steered software company ServiceNow Inc. and data-solutions company Data Domain Inc. through IPOs when he served as CEO of each.
Snowflake, based in San Mateo, Calif., offers businesses cloud-based data management, and corporate customers can share data across multiple online storage systems using the company's data warehouse. It had more than 3,000 customers as of July 31, according to its securities filing.
At its IPO price, Snowflake was valued at roughly $33.3 billion. That made it the second-largest company to go public in 2020 by that metric, according to Dealogic, after Quicken Loans parent Rocket Cos.
Snowflake wasn't the only hot tech IPO on Wednesday. JFrog Ltd.'s stock jumped 47% after the Israel-based software company also priced its offering above expectations.
--Dave Sebastian contributed to this article
Write to Corrie Driebusch at firstname.lastname@example.org