Realising Potential: How The Databricks IPO Will Underline The Growth of Cloud Computing Companies

Despite the recent surge in interest surrounding IPOs, Databricks is set to launch one of the most hotly anticipated IPOs of 2021.

Founded in 2013, Databricks is an AI-enabled, open-source data analytics platform company that, as its co-founder, Ali Ghodsi explains, takes massive, massive amounts of enterprise data and does machine learning and data science on top of it to predict things.

Although we’re still realising the full potential of cloud computing, Databricks has already attracted over 5,000 companies that are interested in using its open-source architecture to process, engineer and analyse their unstructured and semi-structured data. With such an enviable volume of clientele for a company that’s only been in existence for eight years, what does the future hold for the cloud company with big IPO ambitions?

Ramping Up Pre-IPO Funding

In a recent round of funding, Databricks managed to generate over $2 billion to boost the company’s valuation in advance of its anticipated IPO this year.

This new funding will arrive on top of the $897 million that the San Francisco company has already raised, including $400 million Series F rounds of financing the company previously announced in October 2019 – paving the way for a $6.2 billion valuation. The company also added a $250 million Series E funding round in February 2019.

The reports of additional funding have arrived at the start of a 2021 that’s expected to see an IPO from Databricks that has the potential to follow in the footsteps of last year’s astounding initial public offering performance from data cloud provider Snowflake. In the case of Snowflake, the company went public in mid-September 2020 with a market cap in excess of $70bn.

According to Newcomer, an unnamed source explained that Databricks has been in talks to raise a private funding round which would position the company’s valuation in excess of $27 billion. However, the story also claimed that the exact amount that was intended to be raised remains unknown.

At the start of 2021, The San Francisco Business Times cited unnamed individuals close to the deal, stating that Databricks is raising $2bn in funding in a round led by Franklin Templeton. The story, which also referenced the aforementioned Newcomer article, claimed that the new funding round would generate a company market valuation of $29 billion.

Exploring Databricks’ Potential

Databricks’ huge volume of clients points towards a strong and functional business model. Powered on the cloud by Data Lake, the Databricks Lakehouse platform enables companies of virtually any size and stature to efficiently consolidate every piece of their data within one single place.

(Image: Benzinga)

As we can see from the diagram above, Databricks’ can leverage a wide variety of customer data that can help clients to understand their customers’ operational processes. The Lakehouse platform also enables a business advantage for the client company through the hard data it retains. The Lakehouse data management architecture utilised by Databricks has evolved into a go-to piece of tech for simplifying data infrastructure and leveraging innovative technologies.

When it comes to cloud companies launching IPOs, Snowflake’s initial public offering has worked to generate widespread optimism for others within the industry to emulate the company’s excellent performance.

Although Snowflake eventually settled on pricing its IPO stocks at $120 upon launching, the price rapidly accelerated to $388 per share in early December before settling at around $240 – around double that of its initial price.

Buying Into Databricks’ Potential

The prospect of another company that operates on a similar business model to Snowflake entering the market could be tantalising for investors, the process of buying into IPOs like Databricks’ can be difficult for retail investors. Oftentimes, initial public offerings are restricted for more institutional investors to take advantage of due to their willingness to buy huge volumes of shares in one single transaction.

Maxim Manturov, Head of Investment Research at Freedom Finance Europe, says that: Historically, institutional investors get around 90% of all shares, with only around 10% left for retail trades. This is where allocation comes from: when the demand is high, the broker will have to reduce order amounts so as to at least partially fill all of them. The allocation ratio, meanwhile, depends on the investor trading activity and volume.

That said, there’s still a way for the general public to participate in IPOs – there’re online brokers that allow retail investors to take part in IPOs. However, there’s generally a vetting process to go through and a financial threshold to meet.

However, as we saw with Snowflake, the listing of a company on the New York Stock Exchange by no means indicates that the company’s share price is done appreciating. With an innovative platform and high levels of investor confidence, the sky could very well be the limit for Databricks.