Dear Reader,
Snowflake Inc., ticker SNOW, the cloud-based data-warehousing company priced an IPO this week and Snowflake's stock price more than doubled on its first day of trading.
What is the intrinsic worth of Snowflake? Snowflake is grossly overvalued.
Based on 2019 revenue of 265 million USD at market capitalization of 67 billion USD Snowflake is trading at 253 Price/Sales ratio currently. This is basically crazy. Even if Snowflake grows revenue at 120 % year on year as it has done it for the last reported quarter it will take 7 to 10 years for the company to grow into its current valuation.
The real intrinsic value of Snowflake, according to my opinion, is around 15 billion USD. Why? Even fundamentally Snowflake's business model is not very sound. It is a cloud-based data-warehousing company that wants to compete with Amazon, Microsoft and Alphabet on cloud services. At the same times Snowflake relies on Amazon, Microsoft and Alphabet for its cloud infrastructure. Which is basically ridiculous.
I know Warren Buffett invested more than 500 million USD in Snowflake's IPO, but Berkshire Hathaway did that mainly for fear of missing out. I think Warren Buffett has watched too many technology companies shoot up in market capitalization and is tempted to participate in the party.
We are in a technology bubble. Yes, technology companies are good investments but not at these prices. The market is overpaying heavily for growth, much like in the dot-com boom and subsequent bust in 2000. Yes, technology is the future, but these values of both the largest capitalization technology companies and some mid-cap technology companies is totally unfounded. The Nasdaq is overvalued by 60% to 70%. However, in order the bubble to be popped there has to be some liquidity problem, mainly at the banking sector level. Either the Federal Reserve has to start raising rates or for example banks can start making losses on their technology stocks investments which would both lead to a credit crunch.
When the hot capital stops chasing the hot technology companies, the Nasdaq composite will fall by 70%. Technology, however, will continue to be the future. After the dust from the next crash settles, new technology leaders will emerge.
Capitalism's creative destruction will create its winners and losers. As always.
Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn, Facebook etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed on the blog are Petar Posledovich's. Petar Posledovich does not guarantee the accuracy of the information presented on this blog and social networks. The information presented is "as is".
Petar Vladimirov Posledovich is not liable for any investment losses incurred by reading and interpreting blogposts on this blog and posts on social networks.
Conflicts of interest: I may possess some of the securities, currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!
Respectfully yours,
Petar Posledovich
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