Snowflake is one the craziest IPOs the past 10 years
We wrote about the Snowflake IPO three days ago and highlighted that the $105 mid-price at that point was already beginning to be a stretch relative to underlying fundamentals unless the high growth rate could sustain itself for a lot longer normal for high growth companies. The IPO was eventually priced at $120 as institutional demand continued to increase.
Yesterday was first day of trading and the order volume from retail investors and other market participants that were not part of the IPO was so massive that NYSE chose to open the shares at $245 a 104% jump from the IPO price. The stock immediately jumped 15% and was halted and when trading resumed the stock spiked to $319 before collapsing to $231 in less than an hour before being stabilised by market makers and ending the day at $255.
At yesterday’s closing price Snowflake is valued at $70.4bn for a company expected to generate around $588mn in revenue in 2020 and could make around $1bn in revenue if revenue momentum sustain itself. Even under these optimistic lenses, the company is at best valued on FY21 forward price-to-sales of 70x. Just for perspective, Zoom is valued at FY21 forward price-to-sales of 37x and that is on expected revenue of $3.1bn and $1bn in free cash flow generation whereas Snowflake by choice is not free cash flow positive.