You might not have heard of Snowflake until recently. After all, it’s a cloud data storage system. Unless that’s something you need for your business, you may not pay attention to it. But then, the Snowflake IPO happened. It was a historic moment; it’s the biggest software IPO to date. So, should you invest in Snowflake? Here are some important things to consider.
What is Snowflake Cloud Data Storage?
Snowflake is a cloud data storage system platform. As a result, it competes in the market with AWS (Amazon), Azure (Microsoft), and Google Cloud.
Basically, they offer cloud data storage for large companies. They’ve built their own unique cloud data storage architecture that scales well and requires very little maintenance. Big companies that want to make sure that their customers’ data is stored safely in the cloud are turning to Snowflake for solutions.
Snowflake’s Impressive IPO
If, however, you’re less concerned about the details of the business and more concerned about whether or not this company is a good investment, then you might already know about the company’s impressive IPO. Snowflake hit the IPO market in mid-September to great attention.
Here’s a quick timeline of the cloud data storage business’s IPO experience:
- At the beginning of that month, SNOW shares were expected to debut at ~ $80 per share.
- The expectation increased to $100+ per share before the IPO.
- The night of the IPO, SNOW shares launched at $120.
- However, by the following day, shares had already doubled. They peaked at $300 per share that day.
- The closing price landed at just over $25o per share.
- The company’s valuation: $70 billion.
When all was said and done Snowflake sold 28 million shares. This resulted in an IPO exceeding $3 billion.
The previous record for software IPO sales was not-quite-$1-billion. That was from Dell’s IPO more than a decade ago. No wonder people are talking about whether or not to invest in Snowflake.
Snowflake Isn’t Yet Turning a Profit
Snowflake is a relatively small business. The company has just over 3000 customers. That doesn’t seem like many for a company that launched in 2012. However, it’s double the number of last year’s customers. Revenue has also doubled. That said, CNN reports that the company has posted a net loss of about $170 million this year, which is the same as last year’s losses.
But, Snowflake Cloud Data Storage Has Big Backers
Despite the fact that the company isn’t yet making a profit, it has some big backers that believe in its potential. Both Salesforce and Berkshire Hathaway (Warren Buffet’s business) bought $250 million in Snowflake stock following the IPO. Notably, though, Buffet rarely invests in businesses that aren’t profitable, preferring to invest in larger, stabler companies, such as Apple. Therefore, it bodes potentially well that he believed in taking this risk.
Additionally, Snowflake caters to very high-profile companies. It’s not just anyone that’s going to use cloud data storage of this caliber. Approximately 150 of the Fortune 500 companies are customers of Snowflake. There’s potentially some big money to be made for this company.
Consider the Cloud Data Storage Competition
Currently, people love Snowflake because it seems to offer better cloud data storage solution than its competitors. Its pay-as-you-go storage plan and ability to quickly scale up or down as needed seems to work better than the others in the market.
That said, the competitors are big names: Amazon, Microsoft, and Google all have leading cloud data storage solutions. Since those are companies that might be willing to invest more to pivot and match or exceed Snowflake’s services, there’s no telling for sure how long Snowflake will lead this market.
Moreover, there are additional companies that have some value in this market. For example, NASDAQ points out that Cloudera is a potential competitor. They emphasize that big data solutions are going to continue to be important in business. Therefore, investing in companies like this does continue to make a lot of sense. But whether or not Snowflake is the right one of those companies to invest in – well, only the market can bear that out over time.
Risk vs. Reward
When it comes to deciding whether or not to invest in the Snowflake cloud data storage business yourself, you really have to think about potential risks and rewards. After all, this IPO rate is unprecedented, at least for a software company. Therefore, there’s no way to know what’s going to happen to the value of the stocks over time.
Many experienced investors argue that the huge IPO debut is problematic. They worry that the fact that the IPO launched at such a higher rate than expected means that it can only go down. Therefore, they would advocate waiting for a dip in the price before investing. The idea here is that the price will dip down but then has the potential to go back up over time if the company does as well as predicted. So, if you can invest when the prices are a little bit lower, then you might profit more in the long run.
That said, the value of the stock hasn’t declined significantly since the launch. Of course, it changes daily. But, as of the writing of this post, shares are hovering around $270 more than a month after the IPO.
Summary: Should You Invest in Snowflake?
Cautious, conservative investors definitely say not to invest in Snowflake right now. The company does have the potential for growth, but the huge IPO means that even with that growth, value is likely to go down. Therefore, it’s a big risk.
That said, if you’re the kind of investor that likes to hop on trends and is willing to take a big risk in order to potentially profit, then you might have fun investing in Snowflake cloud data storage.
The middle-of-the-road option is to wait a little bit. See if prices go down some overtime. Be patient. And when it feels like they’ve hit their dip, invest carefully. Buy some shares, knowing that the market for Snowflake truly could go either way.
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