IPO Report card:
As of late, the underlying goal of IPOs appears to be how to get retailers to pay as much as possible until the lock-up expires. It doesn’t matter if Berkshire invests unless you get a chance to buy at the same price. Your shares could lose 50% and Berkshire would break even. That’s not a public offering by any stretch of the word. Please keep in mind, that many winners in tech retrace well below their opening price (up to 50% below opening price in the case of Crowdstrike).
Prior to Snowflake raising its opening price (for the fourth time), I had cautioned that: “the biggest risk of all is how much alpha will be left in the first year of trading by the time retailers are offered the crumbs.” When I wrote that, I did not imagine we’d see the opening price of $245. It was, in a word, astounding.
Like Warren Buffet says, the best part of investing is you don’t have to hit every ball. On that note, I can confidently say Berkshire would not be hitting the ball at 98X NTM revenue – but they sure hope you do.
Snowflake went public with an IPO price of $120. It opened at a 105% premium of $245, and closed on its first day of trading just under $254. Based on its opening price, this gave the stock a valuation of 98x NTM revenue if generously calculating 121% growth across all four quarters.
Keep in mind, in the chart below, companies over 40x NTM revenue are profitable.
Regarding their business, Snowflake reported 121% revenue growth YoY with a net retention rate of 158%. As stated, the company is not profitable. In the six months ending in July, they spent roughly $190.5 million on marketing while making $149 million in gross profit.
I discussed Snowflake’s product strength in detail in my previous analysis, stating it demonstrated: “triple-digit growth, clear product differentiation, key metrics that prove product-market fit and gravity-defying management.” However, the price of the stock has become untethered from reality. As stated in the Forbes article, there is little alpha left over the next year and that is the primary risk.
JFrog
JFrog opened trading at a $71.20, which is 62% above its offering price. This gave the stock a valuation of 40x NTM revenue, which was the highest forward multiple in enterprise software at time of IPO until SNOW started trading about an hour later. The company provides DevOps software to organizations globally, enabling those businesses to build and release software faster and more securely.
JFROG posted an impressive 50% growth rate in its latest quarter with 81% gross margins and positive 11% FCF margin, which is why they commanded such a high premium. However, the company faces a bevy of competition including Google Cloud, Amazon Web Services, and Microsoft Azure. JFROG is a pure play, which I tend to favor; however, this IPO valuation is over its skis.
Sumo Logic
Sumo Logic began trading September 17th with an initial offering price of $22 a share. The first trade was 21% above the premium at $26.50 and closed at $26.88. Regarding key metrics, Sumo Logic stated that its dollar-based net retention rate has fluctuated between approximately 120% and 135% for each of the past nine quarters, which is notable. Their forward price/sales based on their opening price gives the stock a valuation of 8.3x NTM revenue.
Sumo Logic’s biggest risk is their competition. Companies such as Splunk, Elastic, Datadog, Dynatrace, Microsoft and Google all have bigger budgets, greater name recognition and a larger customer base.
Amwell
Amwell (AMWL) is a mobile and teleheath platform that connects patients with doctors over video. The stock went public on September 17th with an IPO price of $18. It began trading with 42% premium at $25.51, and closed the day at $23.95.
Amwell’s YoY revenue growth accelerated from 31% year-over-year in 2019 to 77% year-over-year in H1 2020. Based on their opening price, this gave the stock a valuation of 8.4x NTM revenue.
Unity
Unity (U) is set to open trading September 18th at an expected price range of $44-$48. This would value the company in the range of $11.6B-$12.6B. At the high end of the proposed range, Unity would trade at 14.2x NTM revenue.
Unity grew revenue 39% YoY in the first half of 2020 and increased its net-retention rate to 142%, a strong indication of increased spending within its existing customer base. With 93 of the top 100 gaming studios already Unity customers, it is crucial for the company to continue to drive higher spending among existing customers.
Here’s how the string of tech IPOs stack up this week:
Get a bonus for subscription!
Subscribe to our free weekly stock
analysis and receive the "AI Stock: 5
Things Nobody is Telling you" brochure
for free.
More To Explore
Newsletter
The Impact of Tariffs on the Stock Market: Q1 Preview
Rising tariffs are injecting significant uncertainty into the stock market, triggering daily volatility and forcing analysts to revise earnings estimates. Our Q1 preview dives into the potential impac
Tesla Stock Faces Recalibration of Growth Expectations
Tesla’s stock is now facing a recalibration of expectations after Q1’s delivery report missed by a wide margin. Q1’s analyst consensus has gone from $25.98B at the start of the year to $23.97B in earl
The Fed Can’t Save This One: Why Bonds May Break the Stock Market in 2025
In early 2025, as markets rallied to new highs, we warned that divergence across key sectors signaled a looming correction. Now, with all major indexes in a technical bear market and bond market dysfu
Oracle Stock Outlook: Revenue Could Double by FY2029, yet Targets Seem Lofty
Late in 2024, Oracle outlined an ambitious plan to nearly double its revenue by fiscal 2029, hinging on long-term growth in enterprise AI and cloud spending. Oracle sets itself apart from its hypersca
I/O Fund Reports 210% Cumulative Return -- Ranking Above Wall Street's Best
In 2024, I/O Fund posted a 35% return, significantly outperforming popular tech ETFs, which recorded an 8% return over the same period. On a cumulative basis, the results translate to a remarkable 219
The Harsh Truth: Retail Investors Take the Brunt of Market Losses
Retail investors face significant disadvantages in the stock market, often underperforming institutional investors by a wide margin. Studies show that high-frequency trading firms dominate market acti
NVIDIA Blackwell Ultra Fuels AI & HPC Innovation, Efficiency and Capability
NVIDIA’s latest Blackwell Ultra GPU, unveiled at NVIDIA GTC 2025, is transforming AI acceleration and high-performance computing (HPC). Designed for the “Age of Reasoning,” these cutting-edge GPUs del
NVIDIA’s GB200s for up to 27 Trillion Parameter Models: Scaling Next-Gen AI Superclusters
Supercomputers and advanced AI data centers are driving the AI revolution, enabling breakthroughs in deep learning and large-scale model training. As AI workloads become increasingly complex, next-gen
Nvidia CEO Predicts AI Spending Will Increase 300%+ in 3 Years
Nvidia has traversed choppy waters so far in 2025 as concerns have mounted about how the company plans to sustain its historic levels of demand. At GTC, Huang threw cold water on many of the Street’s
Why Gas Pipelines Are the Unsung Heroes of AI Data Center Expansion
Natural gas is emerging as the backbone of AI data center expansion, with demand expected to reach up to 6 billion cubic feet per day by 2030. As AI-driven infrastructure surges, data centers are turn