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Shares of Snowflake, a cloud data warehousing firm that has the backing of Salesforce and Warren Buffett’s Berkshire Hathaway, more than doubled on their first day of trading in the biggest software IPO ever.
Cloud-based data-warehousing startup Snowflake Inc (NYSE: SNOW ) shares jumped on Wednesday more than 111% during their first exit on the public market, the New York Stock Exchange to be precise, in the biggest ever software IPO.
The stock start trading price was $245 per share and it closed at $253.93. Just one day before, Snowflake priced its shares at $120, 20 more than the $100 to $110 IPO range it predicted on Monday, and a really big jump from the $75 to $85 range it estimated last week.
Snowflake’s worth has been estimated to approximately $70.4 billion at the end of trading. That represents over five times bigger price than its $12.4 billion valuation that the company had in February.
CEO Frank Slootman stated:
“A stock is worth exactly what somebody wants to pay for it. It’s like talking about the weather, it is what it is. Tomorrow’s another day, we’ll see what it brings.”
The company managed to raise over $3 billion based only on its opening price. This is also the biggest quantity that some software companies managed to raise ever. The stock trades under the symbol SNOW.
Investors had expected a dynamite opening for the company, which is producing over $500 million in a year’s revenue and rose more than 130% in the first half of 2020. The stock received a ray of sun last week when Snowflake announced in a filing that Warren Buffett‘s Berkshire Hathaway (NYSE: BRK.A) and Salesforce.com Inc (NYSE: CRM) each decided to buy $250 million of stock at the IPO price in a circumstantial private placement. Berkshire Hathaway also pledged to acquire 4.04 million shares in a secondary transaction.
Snowflake is growing together with the major public cloud vendors by providing technology that enables its clients to efficiently analyze and share a huge quantity of data and widen the capacity when needed, rather than relying on databases that are tied to hardware. This is the first of several technology companies to go public this week in one of the busiest stretches of the year, in spite of the ongoing coronavirus pandemic.
Banks Underprice IPOs so Investors Can Earn Big Money
For such a large IPO, an opening pop of this magnitude cannot be seen often. The stunning debut makes CEO Slootman and CFO Mike Scarpelli billionaires, even though neither of them is the company’s founder.
It is possible to reset the debate between venture capital investors, including Benchmark’s Bill Gurley, who said investment banks underprice IPOs so their investor clients can earn big money when the stock starts trading.
Gurley has worked as an advisor to the companies who are thinking of going public and says it is better to do it through a direct listing, rather than an IPO, where the initial stock price is set by orders coming into the stock exchange.
Slootman said he had no regrets with how Snowflake IPO went and added:
“The idea that we could have sold all 28 million shares at the highest price we’ve seen today is complete and utter nonsense. Markets don’t work that way. That’s why this whole DL (direct listing) narrative and all the noise around it is incredibly misguided. What an IPO process does, it discovers the price at which you can move your entire offering. And of course, that’s a much lower number than the number at which you can move 100 shares.”
At the time of writing, the stock was down by 4.23% to $243.20 in pre-market trading.