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Friday, July 30, 2021

Snowflake Melting After a Red-Hot IPO: Buy the Dip With ETFs?

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Cloud database company Snowflake Inc. SNOW slumped 10.4% on Sep 17 after a smashing IPO.The companyrecorded the biggest software IPO of all time, surpassing the 2007 IPO of Dell (DELL)-backed VMWare (VMW), which had raised nearly $1 billion.Snowflake sold 28 million shares and raised nearly $3.4 billion from the IPO.

Warren Buffett-backed Snowflake’s value more than doubled in its stock market debut on Sep 16. Shares of Snowflake opened at $245 on Sep 16, way higher than the company’s list price of $120.

Notably, investors’ enthusiasm for this stock was so vivacious that Snowflake priced its initial public offering on Sep 15 at $120 a share — well above the expected range of $100 to $110. That price range was revised upward from the original expectation of $75 to $85 earlier this month, per CNN.

Founded in San Mateo, CA, in 2012, Snowflake had previously raised money from private investors in February 2020 at a valuation of $12.4 billion, as quoted on a Forbes article. The company, offers “an easily searchable software layer between cloud providers like Amazon (NASDAQ:AMZN), Google (NASDAQ:GOOGL) and Microsoft (NASDAQ:MSFT) and customers’ own programs and apps,” the article noted.

The company generated “revenues of $264.7 million for the fiscal year ending Jan 31 and of $242 million for the six months ending Jul 31, up 174% and 133%, respectively, while posting industry-leading net revenue retention of 158%,” per Forbes article.

Buffett’s Berkshire is backing Snowflake with the purchase of roughly $250 million of shares, while an additional 4 million shares have been bought by another stockholder. The company also has support from Salesforce (NYSE:CRM).

Buy Snowflake on the Dip?

After such a huge jump on day one, it is understandable that shares fell about 10% next day. This is especially true as Wall Street has been going through a rout in the broader tech market. Also, slide in stocks after a mega-IPO is not uncommon.

CNBC’s Jim Cramer suggested on Sep 14 that investors who couldn’t buy the Snowflake IPO should buy the stock after the next tech sell-off. “When these cloud stocks sell off, they sell off hard, so I have to believe you’ll get a better entry point as long as you’re patient,” Cramer Said. After all, cloud is a high-potential concept.

Is ETF a Better Route?

Right now,Snowflake doesn’t have any exposure to any ETF, but has a high chance of getting into Renaissance IPO ETF IPO. The underlying Renaissance IPO Index of the fund is a portfolio of newly U.S.-listed initial public offerings of companies whose unseasoned equities are under-represented in core U.S. equity indices. IPOs that meet liquidity & operational screens are included in the index at the end of the fifth day of trading, or upon quarterly reviews, weighted by tradable float, capped at 10% & removed after two years (read: ETFs to Buy as Zoom Shares Surge 40% on Stellar Q2 Earnings).

Some cloud ETFs like Global X Cloud Computing ETF CLOU and WisdomTree Cloud Computing Fund WCLD may also include the stock in their portfolio in the coming days, given its upbeat potential. So, investors who are wary of Snowflake shares at the current level due to the sell-off, may keep track of the afore-mentioned ETFs and wait for Snowflake’s inclusion (read: Should You Buy or Fear the Dips in Technology ETFs?).

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Renaissance IPO ETF (IPO): ETF Research Reports

Global X Cloud Computing ETF (CLOU): ETF Research Reports

WisdomTree Cloud Computing ETF (WCLD): ETF Research Reports

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