Snowflake files for IPO after months of speculation

After months of speculation, fast-growing cloud data warehouse vendor Snowflake has filed for an IPO.

"All our sources have confirmed that they filed using the JOBS Act approach," said R "Ray" Wang, founder and CEO of Constellation Research.

The Jumpstart Our Business Act was signed into law by President Barack Obama in 2012 and is intended to help fund small businesses by easing securities regulations, including allowing smaller firms to file for IPOs confidentially while testing the market.

"They have ramped up their sales and marketing to match the IPO projections and they've made substantial customer progress," Wang added.

Snowflake, meanwhile, has not yet confirmed that its IPO is now officially in the works.

"No comment" was the official response from the vendor when reached for comment.

Snowflake, founded in 2012 and based in San Mateo, Calif., has appeared to be aiming at an IPO for more than a year.

All our sources have confirmed that they filed using the JOBS Act approach. They have ramped up their sales and marketing to match the IPO projections and they've made substantial customer progress.

The vendor is in a competitive market that includes Amazon Redshift, Google BigQuery, Microsoft Azure SQL Data Warehouse and SAP Data Warehouse, among others. Snowflake, however, has established a niche in the market and been able to grow from 80 customers when it released its first platform in 2015 to more than 3,400.

"Unlike other cloud data warehouses, Snowflake uses a SQL database engine designed for the cloud, and scales storage and compute independently," said Noel Yuhanna, analyst at Forrester Research. "Customers like its ease of use, lower cost, scalability and performance capabilities."

He added that unlike other cloud data warehouses, Snowflake can help customers avoid vendor lock-in by running on multiple cloud providers.

"If the IPO comes through, it will definitely put pressure on the big cloud vendors Amazon, Google and Microsoft who have been expanding their data warehouse solutions in the cloud," Yuhanna said.

Snowflake has been able to increase its valuation from under $100 million when it emerged from stealth to more than $12 billion by growing its customer base and raising investor capital through eight funding rounds. An IPO has the potential to infuse the company with even more capital, and fundraising is often the chief reason a company goes public.

Other advantages include an exit opportunity for investors, publicity and credibility, a reduced overall cost of capital since private companies often pay higher interest rates to receive bank loans, and the ability to use stock as a means of payment.

Speculation that Snowflake was on a path toward going public gained momentum when Bob Muglia, who took over as CEO of Snowflake in 2014 just before it emerged from stealth, abruptly left the company in April 2019 and was replaced by Frank Slootman.

Before joining Snowflake, Slootman had led ServiceNow and Data Domain through their IPOs, and in October 2019 told an audience in London that Snowflake could pursue an IPO as early as summer 2020.

Three months later, in February 2020, Snowflake raised $479 million in venture capital funding led by Dragoneer Investment Group and Salesforce Ventures, which marked the vendor's eighth fundraising round and raised the its valuation to more than $12.4 billion.

Even eight funding rounds are rare, and in order to increase valuation beyond venture capital investments, companies are generally left with the option of either going public or getting acquired.

Meanwhile, last week at its virtual user conference Snowflake revealed expanded cloud data warehouse capabilities that included a new integration with Salesforce that will enable Snowflake to more easily connect to different data sources. And the more capabilities Snowflake has, the more attractive it would be to potential investors in an IPO.

"Snowflake, I believe, has been looking at an IPO for a few years now," Yuhanna said. "They have had a steady revenue streamline for a while, and many large Fortune companies have been using it for critical analytical deployments. Based on our inquiries, it's the top data warehouse that customers have been asking about besides Amazon Redshift."

While Snowflake has finally filed for an IPO, the filing is just one step in the process of going public and it's not certain the vendor will go through with a public offering.

The IPO market, however, has remained active despite the COVID-19 pandemic.