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Battle Road IPO Review, Independent Research On Data Analytics, Independent research on Snowflake, IPO Research, Snowflake IPO, Software IPO Research

Snowflake- an Inflated Sense of Self?

Snowflake logoSnowflake (NYSE: SNOW), a cloud-based data analytics company, is a recent addition to our Battle Road IPO Review Software sector coverage. The company was founded in 2012 by Benoit Dageville and Thierry Cruanes, former data architects at Oracle (NYSE: ORCL). A third co-founder, Marcin Zukowski, was a co-founder of Vectorwise. The company is based in San Mateo, California. Consensus estimates call for revenue of $566 million for its current fiscal year end January 2021, followed by revenue of $1.08 billion, in FY’22. EPS during the same period is expected to be a loss of $1.00 in FY’21, followed by a loss of $0.90 the following year. At a recent share price of $250, the company’s market cap is a rather astonishing $69 billion.

Snowflake debuted on the New York Stock Exchange at an opening price of $120 on September 18th in a 28 million Class A common stock offering. In an unusual twist of events, Snowflake and its underwriters allowed Salesforce.com and Berkshire Hathaway each to acquire over $250 million of stock in private placements, just before the IPO. In addition, Berkshire Hathaway acquired the 4 million share stake of a former CEO of the company. All told, the company raised nearly $4 billion, making it the largest-ever Software IPO. Following the transaction, there are roughly 36 million Class A shares, and 240 million Class B shares, for a total of 276 million shares outstanding. The deal was led by Goldman Sachs, Morgan Stanley, J.P. Morgan, and befitting the size of the offering, 20 additional investment banks.

Snowflake offers a native cloud software platform for data analytics, harnessing the public clouds of Amazon.com (AWS), Microsoft Azure, and Google Cloud. Like all native cloud software companies, whose software does not run on customer owned hardware and internal IT infrastructure, Snowflake can claim, with some accuracy, that its approach requires “near zero” customer maintenance. Snowflake places a great deal of emphasis on its data architecture, which is comprised of storage, compute, and cloud services. Thus, computing tasks are divided among the layers, making its overall operation more efficient. In doing so, Snowflake purports to provide customers with a “single source of truth to drive meaningful business insights,” among other benefits.

The company has grown rapidly, recording revenue of $97 million for the year ended January 31, 2019, tripling the following year to $265 million. Rather astoundingly, the company’s net loss from operations widened from $178 million to $349 million during the same period. The company claims over 3,000 customers as of July 31, 2020, double that of a year ago, and among them, 146 of the Fortune 500. Over 50 customers generated more than $1 million in revenue. Today, roughly 12 percent of sales comes from outside of the U.S.

As a relative new kid on the block, Snowflake has targeted the large installed base of customers of traditional data warehouse and analytics software vendors, including IBM, Oracle, and Teradata. Snowflake is often able to drift in below the radar by selling to a small group of users for a new analytics project. If it demonstrates value to the initial workgroup, Snowflake can then expand into other departments, assuming the customer is willing to idle or part ways with their existing data architecture and infrastructure. Snowflake has been among the pioneers in so-called usage based pricing, wherein customers pay, for example, according to the number of queries that they run, rather than a fixed yearly subscription.

Competition includes Google (NASDAQ: GOOGL), which offers BigQuery, an analytics package exclusive to the Google Cloud, as well as Amazon.com’s Redshift. It should be noted that Oracle (NYSE: ORCL) and Teradata (NYSE: TDC) have placed a great deal of emphasis on their own cloud analytics offerings in recent years, though they face the challenge of fending off attacks on their respective installed bases as cloud-only vendors like Snowflake seek to siphon off funds for new projects.

Snowflake has relatively limited customer concentration, with Capital One Services, accounting for 17 percent, and 11 percent, respectively, during the fiscal years ended January 31, 2019, and January 31, 2020.

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Battle Road IPO Review, IPO Research, IPO research on software stocks, Research On Bigcommerce Holdings

BigCommerce Holdings: Powering Online Sales

BigCommerce Holdings logoBigCommerce Holdings (NASDAQ: BIGC), an ecommerce software company, is a recent addition to our Battle Road IPO Review & Stock Screen coverage. Founded in 2009, the company is headquartered in Austin, Texas, where it is led by Chairman, President, and CEO, Brent Bellm. For 2020, Consensus estimates call for $142 million in revenue, along with a loss of $1.01.  The outlook improves in 2021, as analysts foresee the company producing $170 million in revenue, with a loss per share of $0.41.

BigCommerce debuted on the NASDAQ on August 5th, 2020, at an opening price of $24, in a 10.4 million Series 1 common stock offering, of which 7.9 million were sold by the company, with the remainder sold by shareholders.  Following the transaction, the company has about $215 million in cash, with a net cash position of $144 million.  At a recent share price of $83, the company spent little time as a small cap stock, and now possesses the remarkable market cap of $5.5 billion.  Morgan Stanley and Barclays were lead book-running managers for the offering, with assistance from six other firms.

BigCommerce aims to provide the best SaaS ecommerce platform in the world for all steps of customer growth, with a focus on building online store fronts, and the infrastructure to manage them.  In addition to developing the customer’s ecommerce site, BigCommerce develops cross-channel connections to other online marketplaces, social networks, and offline point-of-sale systems.  The company provides free direct integrations with online marketplaces such as Amazon and eBay, search engines like Google, social networks including Facebook and Instagram, and point-of-sale platforms, such as Square, Clover, and Vend.

The company’s solution includes modules for checkout, order management, store design, catalog management, reporting, and hosting, with pre-integration into third-party services, such as payments, accounting, and shipping.  The company claims that its customers’ stores are run on a single cloud base with a global, multi-tenant architecture developed for high levels of security, performance, and innovation.

When first founded, BigCommerce focused on targeting small businesses, but under new leadership, beginning in 2015, expanded its target market to include the mid-market, or companies with annual online sales between $1 million and $50 million, as well as large enterprises. In total, BigCommerce supplies solutions to roughly 60,000 online stores in 120 countries.  About 75 percent of the sites BigCommerce serves are in the United State, and notable customers include Sony, Ben & Jerry’s, SkullCandy, and SC Johnson.

According to eMarketer, retail ecommerce accounted for roughly 10 percent of all retail spending in 2017.  eMarketer projects that this number will balloon to 21 percent of global retail spending by 2023. The International Data Corporation (IDC) estimates that the worldwide market for digital commerce applications, or ecommerce platforms, was $4.7 billion in 2019, and is expected to jump to $7.8 billion in 2024.  BuiltWith.com ranks BigCommerce as the second most utilized ecommerce platform in the world.

BigCommerce sells its platform through a monthly subscription model, with prices starting at $29.95 per month and increasing with business size and functionality requirements.  In its fiscal year ending December 31st, 2018, BigCommerce recorded $92 million in revenue, with a net loss of $39 million.  While revenue increased to $112 million in its fiscal year ending December 31st, 2019, its net loss grew to $43 million. The stock screens near the bottom of our Battle Road IPO Review Software sector coverage, carrying an EV/sales ratio of 31x projected 2021 Consensus revenue estimates.