Friday Sep.18, 2020

❄️ The Snowflake IPO problem

_Institutional investors watching their Snowflakes rise_
_Institutional investors watching their Snowflakes rise_

Hey Snackers,

A species of rare, permanently-smiling turtles has been saved from extinction in Myanmar. We hope your Friday is as happy as the face of a Burmese Roofed Turtle (#RestingBlissFace).

The market dipped yesterday as (you guessed it) Big Tech stocks fell.

IPO

Snowflake had the biggest software IPO ever, and it reveals a problem with IPOs

Investors didn't flake... on Snowflake's IPO. The cloud company went public on the NYSE on Tuesday, trading under ticker “SNOW” (cuutee). The only thing cute about Snowflake is its name. The actual business is about offering cloud-based data management and analytics.

  • Snowflake stock more than doubled on its 1st trading day, giving the company a massive $70B market value.
  • Then the stock fell 10% yesterday. It's growing fast as revenues doubled from last year, but... it's still unprofitable.

Snowflake = Ariana Grande?... Companies that do a traditional IPO (like Snowflake) hire investment banks like Goldman Sachs to underwrite their new stock offering. Underwriters take on risk, decide the IPO value, and essentially act as talent managers for the stock star: they go on tour (aka: "roadshow") to build interest from institutional investors like mutual funds and brokerages. Those VIP investors are the ones who actually buy the stock "initially" during its Initial Public Offering.

Traditional IPOs have some downsides... Snowflake raised $3.4B in new money for itself by selling stock at its IPO price of $120. It was the biggest software IPO ever. Buuuut: only VIP institutional investors got to buy shares at $120. Then, they unleashed them on the market for the rest of us...

  • Retail investors missed out on a big price jump. By the time Snowflake hit the market, it was trading at $245 on pent-up demand.
  • Snowflake missed out on raising more money by selling at a higher stock price. After it sold stock for $120, Snowflake didn't benefit directly when the stock soared to $245.
  • Institutional investors doubled their money in a day. The IPO seems to have been under-priced, allowing them to sit back and watch their newly bought stock rise.
  • That's one reason private companies are increasingly looking at SPACs and Direct Listings as alternatives to the IPO status quo.
See

Facebook teams up with Luxottica to ship Ray-Ban "smart glasses" in 2021

Success is buying $3 glasses from a stand... and having everyone think they're Ray-Bans. Facebook disagrees, so it's partnering with Italian glasses giant Luxottica for its upcoming smart glasses. Luxottica makes fancy shades from luxury brands like Persol, Prada, and Oliver Peoples. But Zuck is only interested in its Ray-Bans:

  • What to expect: "Smart" Ray-Ban glasses, ETA 2021. FB was super vague about what actually makes these glasses smart. We're expecting photo taking/uploading functionality.
  • What not to expect: Augmented reality. The glasses don't have an integrated display — zero Pikachus will appear as you walk, and no 3D Insta model will pop up as you scroll your feed.

Is Facebook throwing shade?... FB would love to be the one to finally make smart glasses a thing, since all its tech peers have so far failed so far.

  • Google's "Google Glass" was an epic fail. They made people look like fake scientists without adding any daily value.
  • Snap tried with "Spectacles" (multiple times) and lost $40M on 300K unsold pairs.
  • Apple is working on Apple Glass, but we probably won't see those until 2023. Apple's being super secretive (classic) about the details.

Facebook thinks it can make this work by removing the "Facebook"... So far, Big Tech's smart glasses simply haven't provided much usable value. Facebook's differentiator: it's partnering with a well-loved sunglasses brand instead of designing the frames itself (like the other techies did). They're branded Ray-Ban glasses — not Facebook glasses. FB thinks it can avoid its competitors' failure by making "the first truly fashionable smart glasses.”

What else we’re Snackin’

  • Saga: Oracle and Bytedance have reportedly agreed to the Treasury Department's terms for the US operation of TikTok — Walmart's also interested in investing.
  • Charge: Chargepoint, the world's largest electric vehicle charging network, is nearing a deal to bring its orange charging stations public (you might've seen them in parking lots).
  • Toned: Tonal, the at-home strength training company backed by Amazon and Steph Curry, raises an extra $110M in funding.
  • Descend: Airline execs make a final plea for more federal aid — tens of thousands of employees are set to be furloughed on October 1st when aid expires.
  • Oh: Apple announced its 1st partnership with a country — Singapore will pay residents to do health-related activities tracked on Apple Watch.

🍪 Thanks for Snacking with us! Want to share the Snacks? Invite your friends to sign up here.

Friday

  • Consumer sentiment data released
  • Unity Software's IPO

Disclosure: Authors of this Snacks own shares of Apple

ID: 1336382

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