After historic IPO, is Snowflake (SNOW) a serious competitor in the cloud industry?

September 22, 2020 11:00

On Wednesday, September 16, 2020, Snowflake launched its IPO – one of the most successful ever.

Snowflake stock (SNOW) surged over 111.60% last Wednesday leaving Snowflake the biggest software IPO on record with a market capitalization of nearly $70 billion, more than five times the private market valuation of the roughly 12 billion USD it fetched in February.

If you are not familiar with Snowflake and its business model, you can find out more here.

Snowflake (SNOW): one of the craziest IPOs of all time

Traders who have been around for some time and were a part of the New Economy bubble in 1999/2000 haven't seen anything like this: according to Dealogic data, which goes back to 1995, Snowflake has become the largest company by market value to ever double on its first day of trading.

So, on its first day of trading, Snowflake, trading above 300 USD per share at its peak last week on Wednesday, would have ranked 69th in terms of market capitalization.

That is noteworthy because, from a "sales perspective", it would be number 500, lower than all existing companies in the S&P500 with sales over the last 12 months being $403 million.

Here are a few things to consider:

  • There would be roughly 277 million outstanding shares
  • The high of the IPO day gave SNOW a market capitalization of more than 88.4 billion USD

As such, that is a price-to-sales ratio of 219 to 1.

To put things into perspective here:

  • When Amazon (AMZN) went public in June 1997, the company had a market capitalization of nearly 442 million USD
  • After the crash around the GFC in 2008, Amazon had a market capitalization of around 25 billion USD in March 2009
  • Amazon then went above 80 billion USD in terms of market cap in 2011

Back then, Amazon's sales were $40 billion…

Considering this, one wonders if the IPO backers Berkshire Hathaway (BRKB) around investment legend Warren Buffett, along with SalesForce (CRM), who both invested several 100 million USD, will cash in some of their IPO winnings.

How should you trade Snowflake (SNOW) in this environment?

Currently, you can trade Snowflake (SNOW) stocks via our Admiral Markets Invest solution via the MT5.

But, given the massive hype and valuation of the stock, especially in such a highly competitive environment with tech giants like Amazon (AMZN), Microsoft (MSFT) and Google (GOOG) offering similar cloud services as Snowflake, we are considering long engagements, from a risk-reward perspective, as unattractive. In terms of longer-term investments, we would wait, especially given the quite extended mode in Equities and, most likely, also in tech stocks in the US:

Source: Admiral Markets MT5 with MT5SE Add-on SNOW 5min chart (between September 16, 2020, to September 21, 2020). Accessed: September 21, 2020, at 08:00 AM GMT - Please note: Past performance is not a reliable indicator of future results, or future performance.

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