(Bloomberg) Cloud-data software maker Snowflake Inc.—which has emerged as a rare challenger to Amazon.com Inc. in the booming cloud-technology market—raised $3.36 billion in the year’s biggest U.S. initial public offering for an operating company, pricing its shares above the marketed range.
Snowflake, founded in 2012, is a rare challenger to Amazon.com and its Amazon Web Services cloud technology unit as a provider of data warehouse technology, which compiles information from different systems so clients can analyze it together in the same place. In the fiscal year that ended Jan. 31, San Mateo, California-based Snowflake’s revenue soared 174% to $264.7 million compared with the previous fiscal year, the company reported. In the sixth months that ended July 31, sales were $242 million, a 133% year-over-year increase.
‘Like a vacuum sucking up data across different systems’
The company’s software is like a vacuum sucking up data strewn across different systems—including fast-growing ecommerce and online marketing platforms—so that businesses can analyze it all together. The product was built for the cloud era, in which software is delivered over the internet, and Snowflake’s offering is agnostic about where data is stored and where corporate customers want to aggregate it. Clients query that data to understand more about how their businesses are functioning and make better decisions. Snowflake processed an average of 507 million customer queries per day in the month ended July 31, according to the IPO filing.
Amazon led the way in creating the market for computing power, storage and services rented by businesses, helping them avoid running their own data centers. Analysts said the capabilities and flexibility of Snowflake’s product make it more advanced than the competing data warehouse, called Redshift, from Amazon Web Services, which explains the smaller company’s torrid growth rates.
“It’s a rapidly evolving competitive landscape,” Zane Chrane, an analyst at Sanford C. Bernstein, said in an interview. “AWS Redshift probably has the largest cloud data warehouse, with the most customers and revenue, but it’s the oldest. Snowflake has been one of the most disruptive new vendors in the enterprise space in the last few years.”
In the fiscal year that ended Jan. 31, Snowflake’s revenue soared 174% to $264.7 million compared with the previous fiscal year, the company reported. In the sixth months that ended July 31, sales were $242 million, a 133% year-over-year increase.
These lofty figures have excited investors looking for pandemic-proof securities. Berkshire Hathaway Inc. and Salesforce.com Inc. both snapped up stakes in Snowflake in private placements concurrent with the public offering.
Partnering with—and competing against—Microsoft and Google
Snowflake also competes against, and partners with, Microsoft Corp. and Alphabet Inc.’s Google Cloud Platform. The company was founded by Benoit Dageville, Thierry Cruanes and Marcin Zukowski. A longtime Microsoft executive, Bob Muglia, led the startup for five years before being replaced by Frank Slootman in April 2019. The board wanted a leader with more operational experience and a strong plan to go after larger customers, according to a person familiar with the situation who asked not to be identified discussing personnel decisions. Slootman had been CEO of ServiceNow Inc. and Data Domain Inc. when those tech companies went public. A spokeswoman for Snowflake declined to comment.
The Dutch-born Slootman often touts Snowflake’s competitive prowess, saying that it has replaced AWS “thousands of times.”
“It’s an extremely compelling product that we have,” he said in a December interview.
Mandeep Singh, an analyst at Bloomberg Intelligence, said Wall Street was poised to richly value Snowflake partially because of confidence that Slootman can effectively navigate a $70 billion market.
Amazon: Snowflake will ‘make us better’
“Frank gives Snowflake so much credibility,” Singh said in an interview. “He has been there, done that with ServiceNow. The market is willing to pay a rich premium for cloud companies that have a defensible moat and sustainable market.” Shares may hit $150 when trading begins on the New York Stock Exchange, Singh added.
Slootman has focused on landing very large clients. The software maker has recently been reaching eight- and nine-figure deals, said the person familiar with the situation. Snowflake’s contract with Capital One Financial Corp. was valued around $100 million, the person added.
In December, on the sidelines of an AWS conference, Slootman recounted his conversations with Andy Jassy, the Amazon division’s CEO.
“When I talk to Andy, he’s like, ‘It’s a big market, let’s be civil’ and I think he’s right,” Slootman said. “He said, you know, ‘You guys make us better’ and there’s no doubt.”
Snowflake sold 28 million shares Tuesday for $120 apiece, according to a statement. Snowflake had marketed the shares for $100 to $110 apiece, a range that was boosted from $75 to $85 on Monday. The listing ranks as the biggest U.S. IPO this year, excluding the $4 billion offering by the special purpose acquisition company, or SPAC, backed by billionaire Bill Ackman.
Snowflake is valued in the IPO at more than $33 billion based on the outstanding shares listed in its prospectus. That compares with a valuation of $12.4 billion in a private funding round announced in February.
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