The Cloud IPO Pipeline

Public equity investors in cloud stocks are watching developments from the private markets carefully—particularly as many of the private companies look at valuations in the public markets as a good time to issue shares.

September and August 2020 have been active months for cloud computing initial public offerings (IPO). At the time of this writing, five companies have completed or are nearing the tail end of the IPO process.

Snowflake (SNOW), a cloud data warehouse provider, was the blockbuster IPO of the week ending September 18. The company priced its offering at $120 per share, raising $3.36bn and valuing the company at approximately $33.5bn.1 Notably, Snowflake’s IPO price was 50% above the midpoint of the initial range estimated just a week prior. The increase in price reflected mounting demand for the company’s public debut, including investments from Berkshire Hathaway and Salesforce.2 Snowflake began trading on September 16 at $245/share, about 100% above its IPO price! As of this writing, Snowflake is valued at 164x trailing 12-month (TTM) sales.

JFrog (FROG), Sumo Logic (SUMO) and Unity Software (U) began trading in the same week, but their newly listed shares experienced less of a “pop” than Snowflake’s.

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Cloud 100 IPOs

Given that the median public cloud company valuation is near a five-year high, the influx of IPOs is no surprise—raising capital at potentially premium valuations is attractive for private shareholders.

Bessemer Venture Partners has been tracking developments in the private markets in their Cloud 100 Benchmarks Report4 on an annual basis since 2016. Based on the previous Cloud 1005 lists, 33 of the 204 total private cloud companies have completed public offerings (this includes Snowflake, JFrog and Sumo Logic).

But did all the gains to investors in cloud stocks only accrue to private investors, and was it too late to buy once these companies hit the public markets?

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