IPO: Interesting read on Snowflake’s pending offering

quote:

---

ust last night, Snowflake announced its pricing range, and also revealed a pair of companies that will be taking stakes in its IPO. One is Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) -- a somewhat shocking move, given Warren Buffett's well-documented reluctance to buy expensive growth stocks right when they go public. The other is salesforce.com (NYSE:CRM) -- and given that company's propensity toward pricey acquisitions, its interest here shouldn't be too shocking at all.

---

quote:

---

irst, it appears as though Snowflake will hit the market with a sky-high valuation. Tuesday night, the company announced it would be pricing its stock between $75 and $85 per share, or a valuation of $21 billion at the midpoint. Assuming the company takes in $500 million or so in revenue this year, that would put its price-to-sales ratio over 40.

---

quote:

---

Still, it's very reassuring that both Salesforce and Berkshire Hathaway will be taking stakes in the IPO, which certainly seems to tilt things in favor of Snowflake's moat being stronger than it may even appear, and its market opportunity being as large as it says. Each of them will be buying $250 million worth of stock at the IPO price, and Berkshire will be buying out an existing stakeholder for an additional $320 million or so. The move is somewhat shocking for Berkshire, as this is the first real U.S. technology company Berkshire will have invested in that is also a high-growth, expensive-looking, money-losing venture. Salesforce, meanwhile, has a history of successful but expensive-looking tech acquisitions, such as Mulesoft in 2018 and Tableau last year.

Thus, it appears that Snowflake looks like the real deal, as evidenced by its enormous growth rates, customer adoption, and expansion metrics, and high-profile investors. I wouldn't bet against Snowflake doing quite well for public shareholders, even if they buy at an expensive-looking sales multiple.

---