Snowflake: the $70bn tech company you’ve never heard of

Even the notoriously IPO shy mega-investor Warren Buffett took a punt on the cloud company on its first day of trading

Snowflake banner across NYSE
Snowflake staged a record IPO and is now worth more than $70bn despite continuing to make losses  Credit: Reuters

You may have never heard of it, but cloud database company Snowflake made Wall Street history on Wednesday with the largest ever software stock market debut

The California-based virtual data warehousing service notched up a valuation of $70bn (£54bn) on its first day of trading as a blizzard of buying doubled its initial share price and made its co-founder, Benoit Dageville, and chief executive, Frank Slootman, instant billionaires. 

It was a marked departure from the recent trend of disappointing public debuts such as that of Uber, whose shares were repeatedly written down before floating at a price that has since fallen by as much as half.

“It’s a validation of our initial vision,” says Dageville, a 16-year veteran of the database giant Oracle who co-founded Snowflake in 2012 and now serves as its chief technology officer. 

 “From day one everyone said we were crazy, no way you can do what you want to do… [it’s] very ambitious, of course. But I would say we are just at the beginning of implementing that vision.”

Investors, clearly, agree. Technology companies have become hesitant to go public, even before Covid-19 caused the economy to wobble, due to a surplus of private capital. 

But backing from Warren Buffett, who has frequently scoffed at jumping in on stock market debuts, suggests Snowflake might be more than just froth. 

One reason may be down to the type of customers it attracts. Consumer software, such as Uber, Pinterest, Facebook or Twitter, is at the beck and call of flighty individuals who are attracted by gimmicky discounts. These customers pose the risk of deleting an app without much thought, diminishing a company’s user growth and revenue stream. 

Business customers, whom Snowflake counts on, spend more and are more loyal, making businesses who deal with them a more valuable, long term prospect. 

Snowflake offers a virtual data warehouse, allowing companies to pool data from different cloud instances and run analysis on it

Snowflake also claims to serve a critical need for companies looking to pool their ever-expanding databases in virtual warehouses. Moving such data “off premise” into the cloud means less maintenance, fewer names on the payroll and greater flexibility when it comes to capacity and budgets. 

Rather than building out architecture, IT managers can simply tap a button to add more credits. The risk is that your data is being stored by another party, and could be subject to outages and theft. 

This is why many companies are taking a hybrid approach, storing some data in-house while using the big cloud providers for less critical data, or spreading their trove across multiple cloud services. That means they need a tool to sync data from various databases together and analyse it holistically, which is where Snowflake comes into action. 

“Even if this data is completely siloed and bunkered in many different systems, all of a sudden [customers] can centralise this data and analyse it and have a really 360 view,” says Dageville.

“I can connect my data with my customers, with my partners, with my first party datasets, with [data from] vendors… it doesn’t matter that [the data is on] Amazon or Google or Microsoft Azure. For you it's a unified Snowflake layer.”

Snowflake is not the only player in the market. Rival data warehousing appliances like Teradata, Netezza and Exadata have loyal customers – not to mention the cloud giants that Dageville namechecks. 

Teradata reported $1.89bn in revenue in 2019, down $2.1bn for 2018. Conversely, Snowflake reported revenues of $96.7m and $264.7m in 2019 and 2020 with a net loss of $178.0m and $348.5m. But Teradata, founded in California in 1979, was trading at a market value of $2.5bn on Wednesday, to Snowflake’s $70bn high.

Dageville shrugs off the question of whether the price is justified; Snowflake, he says, has the cash it needs to push Snowflake’s technology forward. He adds it will need that money to go up against Amazon and its ilk, who are “partners” but also ultimately competitors – an overlap that has concerned some investors.

While there is certainly room for Snowflake to grab hold of its competitors’ revenue, its backers are also banking on the premise that Snowflake will be to enterprise software tools as Zoom has been to Cisco’s WebEx: easy to use, affordable, and incredibly popular.

“I am fascinated [by] simplicity – [by] making complex systems really easy to use,” says Dageville. “People often associate complexity with power. It’s the reverse, actually: complexity is a barrier to power.”

That didn’t stop Ross Gerber, a Tesla bull, co-founder and chief executive of wealth management firm Gerber Kawasaki, tweeting: “I guess Tesla is cheap when looking at Snowflake.”

Although it may not seem as world-transforming as Uber or Airbnb, Snowflake has proven to be a so-called “disruptor” of its own making, offering a cheaper, lighter alternative to the database products offered by Oracle or SAP, which have traditionally hogged the market, locking customers into lengthy maintenance contracts.    The name of one of Snowflake's competitors, AWS Redshift, is a brazen dig at Oracle, which is often referred to as the Big Red. 

Warren Buffett, chairman of Berkshire Hathaway is among Snowflake’s backers Credit: Reuters

Plus, Snowflake has an impressive user base, counting some of the biggest names in the world – Sony, Capital One – among its 3,117 customers. 

As of July, its customers included seven of the Fortune 10 and 146 of the Fortune 500, with each contributing between 4 and 26pc of its revenues. Just adding on a few more names in the coming months will deliver good returns.

Known backers only added to the sales frenzy, which was paused due to volatility on Wednesday. Berkshire Hathaway’s Warren Buffett and Marc Benioff’s Salesforce Venture Fund LLC picked up $250m worth of shares apiece at the IPO price. 

Buffett has often scoffed at buying companies in their fledgeling stage. His seal of approval is certain to have given the shares even more of an allure. 

In future, Dageville wants to use artificial intelligence (AI) to sort data more deeply and rapidly, as well as cutting the time Snowflake takes to integrate new information so that it appears in customers’ systems within “a few seconds, potentially even less than one”.

“It’s only a milestone, right?” he says of the successful float. “It’s a milestone in our road, and it’s a long road. It looks short; everyone says ‘wow, in eight years you did so much!’ For me, it seems like 20 years or even more.”