Snowflake's post-IPO lockup expires in three stages
Shares of Snowflake (SNOW) are under continued pressure on Tuesday morning ahead of a lockup expiration on December 16 that will allow certain company insiders to cash out for the first time since the company's initial public offering. The lockup expiration comes three months after the stock debut, which is half of the length that is typical following an IPO. This past Friday, Deutsche Bank analyst Patrick Colville downgraded Snowflake to Hold and warned that any rally in the shares would probably be limited as investors seek to lock in gains at the end of the year. Additionally, the analyst argued that any profit taking around the lockup expiry could be exaggerated by tight liquidity typical in late December and early January, when two tranches vest.
MOVING TO THE SIDELINES: On December 11, Deutsche Bank analyst Patrick Colville downgraded Snowflake to Hold from Buy with an unchanged price target of $335. The analyst noted that the shares have risen 28% since the company's third quarter report, despite very little change he sees to the fundamental story. With the shares trading at 52 times estimated fiscal 2032 sales, the risk/reward is now balanced, the analyst contended. Colville continues to believe Snowflake is in the "sweet spot" for key secular trends of data driven decision-making and cloud adoption. Yet, pent-up demand for high-multiple names, such as Snowflake, may be limited as 2020 comes to an end and investors look to protect their year, he argued, adding that any profit taking around the lockup expiry could be exaggerated by tight liquidity typical in late December and early January, when two tranches vest.
Colville noted that Snowflake's post-IPO lockup expires in three stages. Current contractors and employees with a title below vice president, former contractors and employees may sell 25% of their vested holdings on December 16, 2020. The second stage of the lockup allows non-employee stockholders who are not board members and whose shares were not included in the first release to sell 25% of their vested holdings. The analyst expects this event to be triggered some time between January 4-7, 2021. The final stage of the lockup allows the sale of all remaining shares not previously eligible for sale and not purchased in the concurrent private placement or the secondary transaction. He expects this expiry event to be triggered on March 5, 2021, two trading days following the release of Snowflake’s fourth quarter results, which is indicated to be reported on March 3.
WHAT'S NOTABLE: Back in October, Bernstein analyst Zane Chrane initiated coverage of Snowflake with a Market Perform rating and $270 price target. The analyst told investors at the time that he saw risk of multiple contraction as investors begin to anticipate the lockup expiration on insider sales.
PRICE ACTION: In morning trading, shares of Snowflake have dropped almost 2% to $323.85.
"Before the Move" is The Fly's recurring series of exclusive stories that identify potentially market moving events, along with analyst predictions, ahead of the news.