IPO Market Standout: Snowflake Stock Doubles In Wake Of Oversubscribed IPO
Snowflake (SNOW) went public earlier this week, selling 28 million shares of its common stock at $120 per share and raising approximately $3.36 billion in gross proceeds.
The firm provides integrated data management capabilities for enterprises worldwide.
The successful IPO transaction represented a win for Snowflake, which increased its price range after strong investor interest resulted in an oversubscribed offering.
The firm originally filed to sell 28 million shares at a midpoint price of $80 per share, then increased its expected range to between $100 to $110 per share.
The IPO proceeds will provide the firm with significant flexibility and the capacity to invest in its growth initiatives as well as the ability to make acquisitions to deepen and expand its portfolio of service offerings.
SNOW finished its first partial week of trading at $240, exactly double its pricing as investors bid up shares in a frenzy of activity.
While the IPO was certainly successful for SNOW, management may have wanted to perform a ‘modified Dutch auction” as another successful IPO during the week did, that of Unity Software (U).
Going forward, the question for SNOW will be whether it can grow its way into its newfound valuation, now at a $63 billion market capitalization.
I’m not convinced its current stock price of $240 will hold for long, as I suspect there is significant ‘hot money’ that has come into the IPO for the ‘pop’ and that hot money will just as quickly leave as it came in.
While Snowflake’s financial results have been impressive, on a fundamentals basis there is no serious justification for such a high valuation, at least based on current financial metric results.
Interested investors should be cautious around the stock at current levels; savvy investors would watchlist the stock and wait for a potential pullback for a lower entry point that is not priced for perfection.
Below is a table of the week’s IPO results, excluding blank check firms, as of market close on Friday, September 18, 2020:
Source: Donovan Jones
(I have no position in any stocks mentioned as of the article date, no plans to initiate any positions within the next 48 hours, and no business relationship with any company whose stock is mentioned in this article. IPO stocks can be very volatile in the days immediately after an IPO. Information provided is for educational purposes only, may be in error, incomplete or out of date, and does not constitute financial, legal, or investment advice.)
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