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>>> Snowflake Stock Is at Risk of a ‘Violent Selloff.’ Why One Analyst Is Worried.


Barron's

By Eric J. Savitz

Sept. 21, 2020


https://www.barrons.com/articles/snowflake-shares-risk-violent-selloff-analyst-says-setting-sell-rating-51600705017?siteid=yhoof2&yptr=yahoo


Snowflake shares are in bubble territory and at risk of a sharp reversal, the first analyst to pick up coverage of the newly public cloud data analytics company warned on Monday.

Snowflake (ticker: SNOW) made a spectacular debut in the public market last week, setting an initial offering price of $120 a share, then more than doubling on the first day trading to $253.93, after briefly trading as high as $319. But as we noted in this weekend’s Tech Trader column, the huge run has pushed the company’s valuation to unsustainable heights.

Srini Nandury, an analyst with the small investment research firm Summit Insights Group, this morning picked up coverage of the stock with a Sell rating and $175 price target.

Nandury confirms what we said in the column: Snowflake is “the most expensive name in all tech.” He also contends that Snowflake’s software offers “limited differentiation” from competing products like Amazon Redshift, Google Big Query, and Azure SQL Database. He also notes that there are many legacy data warehouse vendors, including IBM Netezza, Oracle (ORCL), SAP (SAP), and Teradata (TDC), all of which offer cloud products of their own.

“With the uncertain macro environment, Snowflake is at risk of a violent selloff,” he writes. “We believe multiple compression is inevitable.” He estimates the stock is trading at 76 times next 12 months sales, compared with 41 times for Zoom Video Communications (ZM), 32 times for Datadog (DDOG), and 31 times for Shopify (SHOP).

The analyst projects revenue growth of 117% for the January 2021 fiscal year to $574 million, with growth slowing to 40% by fiscal 2025.

He also notes that the first lockup expiration on the stock is Dec. 15, when 11.3 million more shares will be eligible for sale. He thinks a secondary offering is likely.

“For the stock to work from the current levels, Snowflake needs to execute flawlessly quarter after quarter, and has to live up to lofty expectations and grow into its valuation,” Nandury writes. “While Snowflake’s management is stellar and is known for its execution, the odds of Snowflake’s stock faltering are high.”

He concludes: “The stock is clearly in the bubble territory.”

Snowflake shares on Monday were down 4.3%, to $229.63. Other recent IPOs, including JFrog (FROG), Unity Software (U), and Sumo Logic (SUMO) were all showing more modest losses. <<<


>>> Snowflake Inc. (SNOW) provides cloud-based data platform in the United States and internationally. The company's platform enables customers to consolidate data into a single source of truth to drive meaningful business insights, build data-driven applications, and share data. Its platform is used by various organizations of various sizes in a range of industries. The company was founded in 2012 and is headquartered in San Mateo, California.

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