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Snowflake Gives Investors a Rare Opportunity to Disrupt Amazon

(Bloomberg) — Snowflake Inc. is riding a wave of enthusiasm leading to its public offering Wednesday, highlighting optimism that the cloud-computing company can more than hold its own against the technology industry’s toughest rivals.

The San Mateo, California-based company, founded in 2012, is seen as a market leader in a key product area dominated by Amazon.com Inc., the top provider of public cloud storage and services. The software maker has also generated blockbuster revenue growth and customer loyalty, according to a regulatory filing.

Snowflake bumped its IPO price range to $100 to $110 a share from $75 to $85, bringing the amount it’s trying to raise to as much as $3.08 billion. The offering could produce a market value of $30 billion for Snowflake, which was last privately valued at about $12.5 billion.

The company’s software is like a vacuum sucking up data strewn across in different systems, 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 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.

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 chief executive officer 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 is poised to richly value Snowflake partially because of confidence that Slootman can effectively navigate a $70 billion market.

“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.”

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