Jim Cramer reveals playbook for Snowflake IPO: ‘It’s a great concept’

CNBC’s Jim Cramer on Monday made a recommendation on the soon-to-be public stock of Snowflake, the cloud enterprise tech company that has drawn interest from the likes of Berkshire Hathaway and Salesforce.

Snowflake, whose software provisions the storing and analyzing of big data, is expected to hold an initial public offering on Wednesday at a higher valuation than previously thought. Cramer said that the company has everything Wall Street desires in a software firm, but patience can give investors a more attractive strike price in what could prove to be a deal that’s too hot for his liking.

“If you want a piece of Snowflake and you can’t get a piece of the actual IPO, I recommend waiting for the next tech pullback … before you pull the trigger,” the “Mad Money” host said. “When these cloud stocks sell off, they sell off hard, so I have to believe you’ll get a better entry point as long as you’re patient.”

Snowflake is setting up to be the largest software IPO in history, Cramer said. The cloud service helps companies with large and inconsistent datasets format and process information to make better business decisions. Snowflake counts Adobe, Logitech, DocuSign and Square among its clients.

An SEC filing updated on Monday shows the company raised its valuation to between $27.7 billion and $30.5 billion with plans to go public at between $100 and $110 per share. The company initially estimated a per-share offering between $75 and $85 earlier this month, which would have given the data warehouse a valuation between $20.9 billion and $23.7 billion.

Cramer worries that Snowflake, which has yet to turn a profit, will have a price multiple larger than that of the most expensive cloud name in Zoom, which trades for 48-times 2020 sales. Should Snowflake manage to grow revenue by 133% to $615 million, the IPO price would register at 45 to 50 times sales, he noted.

After the stock begins trading on the market, Cramer thinks investors can get a discount in the stock price on another future retracement in tech stocks. The tech-heavy Nasdaq Composite rose 1.87% in Monday’s session after falling into correction territory last week as investors locked in profits from the big gains made in the tech sector since the coronavirus-induced meltdown in the first half of the year.

“I think Snowflake’s gonna be a great long-term performer,” Cramer said. “I bet it will have a very strong first week, but the price of admission seems a little too extreme to me, unless you can get in on the deal.”

Snowflake, however, does have “mouth-watering numbers” elsewhere, Cramer said. They include triple-digit growth in revenue, net revenue of existing customers and in total customers with more than $1 million worth of business.

The San Mateo, California-based company, which placed No. 40 on the CNBC Disruptor 50 2020 list, projects a total addressable market of as much as $81 billion for their cloud data platform, and another $56 billion of combined opportunity in analysts, integration and business intelligence.

“Long story short … it’s a great concept. Even better, Snowflake’s got the best bloodlines,” Cramer said referring to CEO Frank Slootman who took ServiceNow public in 2012.

“This guy is a legend in Silicon Valley.”

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