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Why Snowflake Stock Fell Today

What happened

Shares of Snowflake (NYSE: SNOW) declined by 10.4% on Thursday, giving back some of the cloud-based data management company's first-day gains.

So what

To say Snowflake had a blockbuster initial public offering (IPO) would be a massive understatement. After ramping up its offering price several times ahead of its first day of trading, Snowflake eventually settled on $120 per share. Yet investors were apparently willing to pay much more. Snowflake's stock price skyrocketed as high as $319 shortly after it began trading on the New York Stock Exchange on Wednesday afternoon. Shares eventually closed at $253.93, or more than twice their offering price.

Snowflake's shares pulled back on Thursday. Image source: Getty Images.

On Thursday, some investors seemingly decided to book some profits. Snowflake's stock fell to a low near $215 before closing the day at $227.54.

Now what

IPO stocks tend to be highly volatile, and Snowflake is proving to be no different. With a market value of more than $60 billion, its shares are currently trading at roughly 125 times its annualized sales. Snowflake is an impressive company with notable backers that include Warren Buffett's Berkshire Hathaway and cloud software giant salesforce.com, but that's a steep price to pay for any business. Snowflake's shares, in turn, are likely to remain volatile as investors attempt to properly evaluate and value the young, high-growth company.

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Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares) and Salesforce.com and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), and short September 2020 $200 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.


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