By Jeremy C. Owens
Snowflake Inc. produced the biggest initial public offering for a U.S. software company in history this week, and that may not even be the most astounding feature of its first share sale.
Snowflake /zigman2/quotes/220991541/composite SNOW +0.12% has convinced one of the world’s most coveted investment partners, Berkshire Hathaway Inc. /zigman2/quotes/208872451/composite BRK.A +0.27% /zigman2/quotes/200060694/composite BRK.B +0.14% , to invest more than half a billion dollars in its IPO, despite founder Warren Buffett’s legendary aversion to young technology companies and IPOs. And Berkshire is not alone, with Salesforce.com Inc. /zigman2/quotes/200515854/composite CRM -0.62% also committing hundreds of millions of dollars to a company that is expected to rake in nearly $4 billion at a valuation of roughly $33 billion just eight years after being established.
Snowflake is generating excitement because the San Mateo, Calif., company offers an essential part of many businesses’ technology infrastructure in a new fashion. Snowflake produces database software that uses the same standard as Oracle Corp. /zigman2/quotes/202180826/composite ORCL +0.34% but can be used in the cloud and scaled up or down as needed, with variable pricing to match. While large U.S. cloud providers like Amazon.com Inc. /zigman2/quotes/210331248/composite AMZN +0.03% , Microsoft Corp. /zigman2/quotes/207732364/composite MSFT +0.83% and Alphabet Inc.’s Google /zigman2/quotes/202490156/composite GOOGL -0.59% /zigman2/quotes/205453964/composite GOOG -0.73% offer similar services, Snowflake is the only standalone company offering such software to run on all of their cloud platforms though.
“There’s not really a pure-play company on the market like Snowflake,” independent technology investment analyst Beth Kindig told MarketWatch.
Snowflake’s singular nature has sent interest in the IPO soaring. After initially proposing a price range of $75 to $85 a share, the company dramatically increased its proposed price to $100 to $110 a share Monday morning , and finally priced shares at $120 apiece Tuesday night . The stock opened at more than double that price in Wednesday’s session .
Snowflake intends to sell at least 28 million shares, in addition to issuing $250 million in stock apiece at the IPO price to Berkshire and Salesforce. Berkshire will also purchase more than 4 million shares at the IPO price from Snowflake’s former chief executive.
Snowflake began trading Wednesday on the New York Stock Exchange under the ticker symbol SNOW. Underwriters, led by Goldman Sachs and Morgan Stanley, will have access to an additional 4.2 million shares.
Here are five things to know about the company as it goes public.
Software companies have long sought to break Oracle’s hold on the database market, including MongoDB Inc. /zigman2/quotes/203302825/composite MDB -4.18% , which does not use the standard format of SQL. Snowflake allows customers to use SQL and offers diverse functionality with it, and offers pricing that scales with the workload, unlike legacy on-premises database offerings that required customers to pay for peak usage even when it was not required.
“They’re bringing an Amazon-like approach to data warehousing,” Kindig said.
Snowflake is taking that approach on cloud platforms that offer their own solutions, however. Google’s BigQuery, for instance, also offers a variable pricing structure, and Amazon’s Redshift is considered to be the biggest player around.
“Based on the number of customers per company according to HG Insights, Redshift is about 4x bigger than Snowflake whereas Google’s Big Query is about 2x bigger than Snowflake,” MKM Partners Executive Director Rohit Kulkarni wrote in a pre-IPO note on Snowflake earlier this month.
Google requires users to lock in to their cloud offering for its service, however, which is where Snowflake has a chance to battle its larger competitors. As customers move toward a multi-cloud set-up, in which they can purchase cloud-computing service from more than one of the large providers, Snowflake can be used no matter which cloud product is running.
Snowflake’s value proposition to corporate customers has helped it produce triple-digit revenue growth, though losses are also multiplying. Revenue grew nearly 175% in the fiscal year that ended at the end of January, to $264.7 million from $96.7 million. In the first six months of this fiscal year, ending July 31, sales again more than doubled easily, moving to $242 million from $104 million.
Losses did not double in the most recently completed fiscal year, but they came close, moving to $348.5 million from $178 million, with both of those totals eclipsing the company’s revenue from that year. That trajectory eased some in the first six months of this year thanks to a slowdown in operating-expense spending growth, with losses declining to $171 million from $176.9 million in the same period last year.