Tag: Snowflake Inc.

How Israel’s tech community is responding to the Israel-Hamas war

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Israeli soldiers on a tank are seen near the Israel-Gaza border.

Ilia Yefimovich | Picture Alliance | Getty Images

On Saturday, Dvir Ben-Aroya woke up expecting to go on his regular morning run. Instead, he was met with blaring alarms and missiles flying over Tel Aviv.

Ben-Aroya, co-founder of Spike, a workplace collaboration platform with clients including Fiverr, Snowflake, Spotify and Wix, was confused for over an hour — “No one really knew what was going on,” he recalled — but as time passed, social media and texts from friends began to fill him in.

That morning, Hamas, the Palestinian militant organization, had carried out terrorist attacks near the Israel-Gaza border, killing civilians and taking hostages. On Sunday, Israel declared war and began implementing a siege of Gaza, cutting off access to power, food, water and fuel. So far, more than 1,000 Israelis have been killed, according to the Israeli Embassy in Washington; in Gaza and the West Bank the death toll is nearing 850, according to two health ministries in the region.

Follow our live coverage of the Israel-Hamas war.

At 3 p.m. local time Saturday, Ben-Aroya held an all-hands meeting, and he says every one of his 35 full-time, Israel-based employees joined the call. People shared their experiences, and Ben-Aroya decided everyone should work from home for the foreseeable future, adding that if anyone wanted to move away from Israel with their family, the company would support them. At least 10% decided to take him up on that offer, he told CNBC, and he believes more will do so in the coming weeks.

Israel’s tech community accounts for nearly one-fifth of the country’s annual gross domestic product, making it the sector with the largest economic output in the country, according to the Israel Innovation Authority. The tech sector also makes up about 10% of the total labor force. Even during war, much of Israel’s tech community is still finding a way to push forward, according to Ben-Aroya and a handful of other members of the tech community CNBC spoke with.

Israeli soldiers stand guard at the site of the Supernova desert music Festival, after Israeli forces managed to secure areas around Re’im.

Ilia Yefimovich | Picture Alliance | Getty Images

Ben-Aroya had been planning to launch Spike’s integrated artificial intelligence tool this past Monday, and he almost immediately decided to put the project on hold — but only for a week’s time.

For Amitai Ratzon, CEO of cybersecurity firm Pentera, Saturday began with “uncertainty and lots of confusion,” but when his company had its all-hands meeting on Monday, with 350 attendees, he recalled some Israel-based workers viewing work as a good distraction. For those who feel the opposite, the company is allowing them to take the time off they need.

Pentera operates from 20 countries, with Israel having the largest employee base, and it specializes in mimicking cyberattacks for clients such as BNP Paribas, Chanel and Sephora to identify system weaknesses. Ratzon said he has had to restructure some international commitments amid the conflict — canceling the training session some employees were flying into Israel for, asking someone to cover for his planned keynote address in Monaco, and having German and U.K. team members fly to a Dubai conference that Israel-based employees had been planning on attending.

“Everyone is covering for each other,” Ratzon told CNBC.

A considerable number of tech workers have already been called on for military reserve duty — a mobilization that so far totals about 360,000 Israelis.

Ratzon said Pentera has more than 20 of its best employees currently serving, “some of them on the front lines.”

Isaac Heller, CEO of Trullion, an accounting automation startup with offices in Tel Aviv, told CNBC that the company’s finance lead just finished its 2024 financial forecast and then immediately delivered new bulletproof vests for his Israeli Defense Forces unit after raising more than $50,000 to secure them.

Of digital bank One Zero’s almost 450 employees — all based in Israel — about 10% were drafted for reserve duty, CEO Gal Bar Dea told CNBC. He was surprised to see people constantly volunteering to cover for each other in an employee WhatsApp group.

“This guy says he was drafted, all of a sudden three people jump in and cover his tasks,” Bar Dea said. “There’s a sense of business as usual, everything is moving forward. … We had some meetings today on new launches coming. Everyone is keeping moving and covering for each other.”

One Zero is working on a ChatGPT-like chatbot for customer service, and this week employees opted to join optional planning meetings and decided not to move the deadlines, Bar Dea said. The person leading the ChatGPT efforts, an Air Force pilot who has been drafted, chose to join conference calls in his military uniform in between his duties, Bar Dea said.

“Many, many members of the tech community have been called up to reserve duty,” Yaniv Sadka, an investment associate at aMoon, a health tech and life sciences-focused venture capital firm, told CNBC, adding that a large swath of the community has been called to serve in Israel’s intelligence units as their reserve duty.

“I will have, by tonight, already been to two military funerals,” Sadka said.

Some members of Israel’s tech community are working overtime on tech tools specific to the conflict, such as a bulletin board-type website for missing persons, cyberattack defense tools, a GoFundMe-like tool and even a resource for finding online psychologists, according to Bar Dea.

“It’s pretty amazing — it’s the secret sauce of Israel … startup nation,” Bar Dea told CNBC, adding, “In two days, people are raising money, volunteering, taking kids in, building new houses, walking deserted dogs. … All the high-tech companies. People are building cyber stuff, communication stuff … stuff to help civilians … websites to find hostages.”

Sadka said that he’s “never seen anything like” the mass donations and mass volunteering happening at the moment.

“It’s thousands upon thousands upon thousands of people taking care of each other. There are everyone from teenagers to senior citizens helping,” he said.

Five minutes before Bar Dea’s call with CNBC, he said he heard sirens blaring from his office, and that his wife had taken his kids inside their home to shelter in place.

“It’s interesting trying to be the CEO of a bank or high-tech company, meanwhile I’m the father of a 10-year-old and a 6-year-old,” Bar Dea said, adding, “It’s very tough. It’s something we’ve never experienced before, ever. … Everyone is trying to get our hands around how to deal with it from a business perspective and also from a personal perspective.”

Sadka added, “It’s very difficult to concentrate on work when you’re dealing with all these personal matters and on securing yourself and the country.”

More CNBC coverage of the Israel-Hamas war

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October 14, 2023
Google engaged in a monopolistic feedback loop to maintain search dominance, DOJ alleges in first day of trial

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Jonathan Kanter, Assistant Attorney General for the Antitrust Division at the Department of Justice, arrives at federal court on September 12, 2023 in Washington, DC.

Kevin Dietsch | Getty Images

Google pays billions of dollars to make sure its search engine runs by default on internet browsers and phones, feeding a cycle that pumps its own monopoly profits while making it harder for rivals to gain significant market share in search, the government alleged in opening arguments Tuesday at the biggest tech antitrust trial in decades.

Lawyers for the Department of Justice and a coalition of state attorneys general led by Colorado faced Google on Tuesday, as the 10-week trial kicked off in Washington, D.C. District Court. Day one of the trial set the stage for how the government and Google would argue their opposing views of how the company has maintained a large slice of the search market for years.

The government’s case is that Google has kept its share of the general search market by creating strong barriers to entry and a feedback loop that sustained its dominance.

Google says it’s simply been the preferred choice of consumers. That popularity, the company says, is why browser and phone makers have chosen Google as their default search engine through revenue sharing agreements.

The opening statements also previewed who each side will lean on to help make their arguments. In addition to economic experts that will speak to Google’s level of dominance and behavior, Google said the court would hear from several of its own executives and those from other businesses.

The court will hear from the company’s CEO Sundar Pichai, who the DOJ’s lawyer said Google intends to call. It will also hear from Apple’s Senior Vice President of Services Eddy Cue and Mozilla CEO Mitchell Baker, Google’s lawyer said. Several other Google executives, including those who oversee advertising services and search products, are also expected to be witnesses, the lawyer added.

Additionally, the court will hear from Sridhar Ramaswamy, a former senior advertising executive for Google who later co-founded a competitor search engine, Neeva, the DOJ said. The privacy-focused search engine founded in 2019 announced in May that it would shut down the consumer product and instead focus on artificial intelligence use cases. Neeva agreed that month to be acquired by Snowflake.

Following opening statements, the DOJ lawyer questioned its first witness, as it begins what’s known as its “case-in-chief.” The judge has allotted about four weeks for the DOJ to present its case, after which the coalition of state AGs led by Colorado will do so, followed by Google.

Hal Varian, chief economist at Google Inc., arrives to federal court in Washington, DC, US, on Tuesday, Sept. 12, 2023.

Ting Shen | Bloomberg | Getty Images

The DOJ’s lawyer walked Google’s Chief Economist Hal Varian through a series of documents, beginning with a 2003 memo he wrote called “Thoughts on Google v Microsoft.” At the time he wrote the memo, Varian said he was reporting to a boss who reported directly to the CEO.

In the memo, Varian had raised antitrust concerns with Google leaders, urging them to “be careful about what we say in both public and private” on the subject. Varian wrote, “we should also consider entry barriers, switching costs and intellectual property when prioritizing products.” During his testimony, Varian said the best entry barrier is a superior product.

DOJ and states’ arguments

“This case is about the future of the internet and whether Google’s search engine will ever face meaningful competition,” the DOJ’s lawyer, Kenneth Dintzer, told the court in his opening statements.

Dintzer alleged Google has more than 89% of the market for general search, citing an economic expert witness. General search is used by consumers as an “onramp to the internet,” Ditzner said, making it distinct from more specialized search engines. Unlike with a specialized search service, users seek out a general search engine when they don’t know the best website for an answer to their question.

“There are no substitutes for general search,” Ditzner said.

Google maintains its monopoly through a feedback loop that serves to strengthen its hold on the market while making it harder for rivals to enter. Google pays for defaults, which allow it to get more search queries. More queries means more data, which can be used to improve search quality, helping Google make more money. That gives Google more resources to pay for default status.

Since the Federal Trade Commission declined to bring an antitrust case against Google nearly 10 years ago, Patterson Belknap Webb & Tyler’s William Cavanaugh, who represents the states, said “Google has doubled down on its efforts to use defaults in its distribution agreements.”

Google itself recognizes the immense value of defaults. The company pays more than $10 billion per year to maintain default status across browsers and devices, the DOJ alleged. And the company once called the idea of losing its default placement with Apple “a code red situation,” Ditzner said.

At the same time, Google sought to “limit Apple’s ability to design products that compete with Google,” given it has the resources and foundation to build a powerful rival, Ditzner said.

In 2013, Ditzner told the court, Apple adopted its own suggestions in its browser when users begin a search. The feature “concerned” Google, Joan Braddi vice president of product partnerships at Google, later said in an email Ditzner referenced.

In turn, Google added to the revenue sharing agreement with Apple a stipulation that it could not “expand farther than what they were doing in Sept 2016 (as we did not wish for them to bleed off traffic),” Braddi wrote. “Also, they can only offer a ‘Siri’ suggestion exclusively for quality and not because they want to drive traffic to Siri.”

While Google argued browser and device makers freely enter agreements to make its search engine the default, the DOJ said Google has the upper hand in getting device manufacturers to sign its agreements. For example, manufacturers consider the Play Store a “must-have app” for Android phones, Ditzner said, but the only way to get it is by signing the exclusivity agreements.

The evidence will show device manufacturers and carriers accepted the exclusivity and revenuesharing agreements “because that was the only option,” Ditzner said.

In 2020, Samsung and AT&T were interested in partnering with Branch Metrics, which had a search engine that could answer questions by searching apps on a phone, the DOJ said. But Google told AT&T and Branch they couldn’t do the deal. Google’s lawyer later said there’s no evidence the company told carriers they couldn’t use Branch. Google’s lawyer added that Branch’s CEO would testify that it doesnn’t compete with Google.

The states also touched on their claims that Google used what was supposed to be a neutral ad buying tool to thwart rival Microsoft. Google will say it had no duty to deal with Microsoft, Cavanaugh said, but that doesn’t apply here because “they have chosen to deal.”

Finally, the government said the court would hear more about Google’s alleged document destruction, saying that it taught employees to hide evidence through its “Communicate With Care” program. Google told employees to include legal on “any written communication” about revenue share agreements, the government alleged. The DOJ also shared a 2021 message from Pichai in which he asked if he and a colleague could “change the setting of this group to history off,” before deleting the request.

Google’s argument

Kent Walker, President of Global Affairs and Chief legal officer of Alphabet Inc., arrives at federal court on September 12, 2023 in Washington, DC.

Kevin Dietsch | Getty Images

Google said it faces fierce competition and that the popularity of its search engine is due to its continued innovation, rather than efforts to thwart rivals.

In a world where search queries are increasingly entered across many different apps and websites, Google’s lawyer, Williams & Connolly’s John Schmidtlein said, “that competition has never been more real.”

Comparing the case to the DOJ’s 1990s allegations against Microsoft is misguided, Schmidtlein said. While the government accused Microsoft in that case of forcing PC manufacturers to preload its own browser over one that was preferred by consumers, here Google competed for default status, Schmidtlein said.

To the government, Microsoft is the supposed “victim” in this case, Schmidtlein said. But Microsoft failed to advance its position in search because it did not invest or innovate in it for a long time, Schmidtlein argued, focusing instead on its Windows desktop product.

Google also had no duty to deal with Microsoft, a rival, on its preferred terms with its search ad tool. Schmidtlein said Google had fulfilled four out of five of Microsoft’s feature requests for the tool. The one outstanding feature, real-time bidding for ads, took years for Google to build for its own product, and a version compatible with Microsoft’s tools is now being tested, he said.

Google also contended that advertisers are motivated by return on their investment and are very willing to switch platforms if they think they’ll get a better deal elsewhere.

Browser and device makers actually like having default features for many reasons, Google’s lawyer argued. For browsers, search engines are a reason for consumers to use their interface, and accepting a revenue sharing agreement for a default search provider is a good way for browsers to make money, given they are usually free to consumers.

But it’s important browsers pick the right search default, Schmidtlein said, as Mozilla learned when it switched its default from Google to Yahoo in 2014. By 2017, Mozilla terminated what was supposed to be a five-year deal, with its Chief Business and Legal Officer Denelle Dixon saying in a statement that the company “exercised our contractual right to terminate our agreement with Yahoo! based on a number of factors including doing what’s best for our brand, our effort to provide quality web search, and the broader content experience for our users,” TechCrunch reported at the time.

Similarly, Apple has touted that Google is the default search engine on its browser.

“Apple repeatedly chose Google as the default because Apple believed it was the best experience for its users,” Schmidtlein said.

On the phone manufacturing side, Google argued that its revenue sharing agreements have the effect of “enhancing competition between Apple and Android, causing those two mobile platforms to invest, to develop better devices.”

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WATCH: DOJ takes on Google in antitrust lawsuit over Google Search

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September 12, 2023
Instacart files to go public on Nasdaq to try and unfreeze tech IPO market

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Instacart, the grocery delivery company that slashed its valuation during last year’s market slide, filed its paperwork to go public on Friday in what’s poised to be the first significant venture-backed tech IPO since December 2021.

The stock will be listed on the Nasdaq under the ticker symbol “CART.” In its prospectus, the company said net income totaled $114 million, while revenue in the latest quarter hit $716 million, a 15% increase from the year-ago period. Instacart has now been profitable for five straight quarters, according to the filing. PepsiCo has agreed to purchase $175 million of the company’s stock in a private placement.

Instacart said it will continue to focus on incorporating artificial intelligence and machine learning features into the platform, and that the company expects to “rely on AIML solutions to help drive future growth in our business.” In May, Instacart said it was leaning into the generative AI boom with Ask Instacart, a search tool that aims to answer customers’ grocery shopping questions.

“We believe the future of grocery won’t be about choosing between shopping online and in-store,” CEO Fidji Simo wrote in the prospectus. “Most of us are going to do both. So we want to create a truly omni-channel experience that brings the best of the online shopping experience to physical stores, and vice versa.”

Instacart will try and crack open the IPO market, which has been mostly closed since late 2021. In December of that year, software vendor HashiCorp and Samsara, which develops cloud technology for industrial companies, went public, but there haven’t been any notable venture-backed tech IPOs since. Chip designer Arm, which is owned by Japan’s SoftBank, filed for a Nasdaq listing on Monday.

Founded in 2012 and initially incorporated as Maplebear Inc., Instacart will join a crop of so-called gig economy companies on the public market, following the debut in 2020 of Airbnb and DoorDash and car-sharing companies Uber and Lyft a year earlier. They’ve not been a great bet for investors, as only Airbnb is currently trading above its IPO price.

Instacart shoppers and drivers deliver goods in over 5,500 cities from more than 40,000 grocers and other stores, according to its website. The business took off during the covid pandemic as consumers avoided public places. But profitability has always been a major challenge, as it is across much of the gig economy, because of high costs associated with paying all those contractors.

Headcount peaked in the second quarter of 2022, Instacart said, “and declined over the next two quarters, reducing our fixed operating cost base.” At the end of June, the company had 3,486 full-time employees.

In March of last year, Instacart slashed its valuation to $24 billion from $39 billion as public stocks sank. The valuation reportedly fell by another 50% by late 2022. Instacart listed Amazon, Target, Walmart and DoorDash among its competitors.

The biggest area for cost reductions has been in general and administrative expenses. Those costs shrank to $51 million in the latest quarter from $77 million a year earlier and a peak of $102 million in the final period of 2021. Instacart said the drop was the “result of lower fees related to legal matters and settlements.”

Simo took over as Instacart’s CEO in August 2021 and became chair of the company’s board in July 2022. She was previously head of Facebook’s app at Meta and reported directly to CEO Mark Zuckerberg. Apoorva Mehta, Instacart’s founder and executive chairman, plans to transition off the board after the company’s public market debut, according to a 2022 release.

The company’s board also includes Peloton CEO Barry McCarthy, Snowflake CEO Frank Slootman and Andreessen Horowitz’s Jeff Jordan.

Instacart will be one of the first independent grocery delivery companies to go public. Amazon Fresh, Walmart Grocery and Google Express are all units of large corporations. Shipt was acquired by Target in 2017 and Fresh Direct, another direct-to-consumer grocery delivery company, was bought by global food retailer Ahold Delhaize in 2021.

Sequoia Capital and D1 Capital Partners are the only shareholders owning at least 5% of the stock. Instacart said those two firms, along with Norges Bank Investment Management and entities affiliated with TCV and Valiant Capital Management, have “indicated an interest, severally and not jointly” in purchasing up to $400 million of shares in the IPO at the offering price.

Instacart’s move into AI has come largely through a string of acquisitions in the past two years. Those deals include the purchase of e-commerce startup Rosie, AI-powered pricing firm Eversight, AI shopping cart and checkout solutions provider Caper, and FoodStorm, a software startup specializing in self-serve kiosks for in-store customers.

The company also touted its use of machine learning in predicting grocery availability for retailers and increasing consumer sales. It said its algorithms predict availability every two hours for the “large majority” of its 1.4 billion grocery items, and that more than 70% of customers purchased items through Instacart’s recommendation algorithm in the second quarter of 2023.

Goldman Sachs is leading the offering. That’s the former employer of Instacart finance chief Nick Giovanni, who was previously global head of the tech, media and telecom group at the investment bank.

WATCH: Instacart files for IPO

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August 25, 2023
Stocks making the biggest moves after hours: Nvidia, Splunk, Autodesk, Guess and more

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Nvidia headquarters in Santa Clara, California, June 5, 2023.

Marlena Sloss | Bloomberg | Getty Images

Check out the companies making headlines in extended trading.

Splunk — Shares added 11% after an earnings beat. Splunk earned 71 cents per share, after adjustments, on $889 million in revenue. Analysts polled by FactSet had forecast Splunk would earn 46 cents per share. The company also raised its forecast.

Nvidia — The chip stock added nearly 9% after reporting second-quarter results. Nvidia earned $2.70 per share, excluding items, on $13.51 billion in revenue, while analysts polled by Refinitiv forecast $2.09 per share in earnings and $11.22 billion in revenue.

Snowflake — Shares added nearly 3% after beating earnings expectations. Snowflake reported a profit of 22 cents per share on an adjusted basis on $674 million in revenue. Analysts polled by Refinitiv forecast 10 cents per share in profit on $662 million in revenue.

Taiwan Semiconductor, AMD, Marvell — Semiconductor stocks were higher after Nvidia reported a second-quarter earnings beat. Taiwan Semiconductor added 3%, while AMD and Marvell gained 3.9% and 5.3%, respectively.

Guess — The fashion stock surged nearly 19% after Guess reported it had earned 72 cents per share, excluding items, on $664.5 million in revenue in the latest quarter.

Super Micro Computer — Shares climbed 8.4% following Nvidia’s earnings beat. Loop Capital reiterated a buy rating on Super Micro Computer stock earlier Wednesday, with analyst Ananda Baruah saying Nvidia’s earnings could boost the stock if the report surpasses estimates.

Autodesk — The software stock climbed 5% after reporting second-quarter results. Autodesk earned $1.91 per share after adjustments on $1.35 billion in revenue, while analysts polled by Refinitiv predicted $1.73 per share in earnings and $1.32 billion in revenue.

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August 23, 2023
Cloud stocks falter as Datadog trims 2023 revenue expectations

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Cloud stocks are slipping on Tuesday, after one of the more prominent ones, Datadog, lowered its full-year revenue guidance as organizations remain engaged in cost-saving exercises.

One cloud-oriented exchange-traded fund, the WisdomTree Cloud Computing Fund, tumbled 3% for the day, on pace for its fifth day of declines in the past six trading sessions.

Many cloud-computing companies enjoyed higher demand after Covid prompted companies, governments and schools to switch on more cloud services as employees worked from home. Then inflation hit, central bankers raised interest rates, and investors began selling holdings in fast-growing cloud stocks and rotating into safer investments that could more consistently offer returns.

Plus, some parts of the economy, such as real estate, have started to flag because of higher rates, leading management teams to look for places to save money on cloud infrastructure and other technology.

Executives at many cloud companies responded by reducing overhead, sometimes in the form of layoffs. In the past several months, the rise of generative artificial intelligence services such as startup OpenAI’s ChatGPT chatbot have made investors more interested in adopting similar technologies and additional tools to help with the shift. Cloud stocks began to rebound, but many, including Datadog, have yet to trade above their record highs from 2021.

Now some of the fastest-growing companies are no longer looking so hot.

Datadog’s revenue grew almost 83% year over year in the first quarter of 2022. Early on Tuesday Datadog said it expects full-year revenue to come in between $2.05 billion and $2.06 billion, down from the range of $2.08 billion to $2.10 billion that it provided in May. That implies Datadog sees fourth-quarter revenue growing just 15%, compared with a forecast of almost 23% before. Analysts polled by Refinitiv had expected $2.081 billion in revenue for the full year.

“We saw usage growth for existing customers that was a bit lower than it had been in previous quarters,” Olivier Pomel, Datadog’s cofounder and CEO, said on a conference call with analysts. “We continue to see customers larger spending customers scrutinize costs.”

Datadog’s guidance of $521 million to $525 million in revenue for the third quarter underwhelmed analysts. They had expected $533 million, according to Refinitiv. Then again, Pomel said during the call that he and his colleagues have incorporated conservatism into their outlook.

“For a company where growth has been one aspect making it so attractive, it is probably not surprising that the stock is down sharply in the pre-market,” Bernstein Research analysts led by Peter Weed, with the equivalent of a buy rating on Datadog stock, wrote in a note distributed to clients. They haven’t soured on the stock altogether, though. They analysts wrote that they expect growth to return as enterprise spending budgets recover and venture capitalists start pouring large pools of money into startups again.

Datadog shares, which debuted on the Nasdaq in 2019, were on track for their sharpest single-day pullback since March 2020, as Covid emerged in the U.S. They were down as much as 21% on Tuesday.

Most stocks in WisdomTree’s cloud fund were down on Tuesday. But it wasn’t all Datadog’s fault.

Late on Monday cloud communications software maker RingCentral said Hewlett Packard Enterprise’s finance chief, Tarek Robbiati, will replace co-founder Vlad Shmunis as CEO later this month. Shares of RingCentral were down as much as 18%.

“Sales cycles remain elevated versus last year, and customer buying decisions continue to go through additional layers of approval,” RingCentral’s chief financial officer, Sonalee Parekh, said on a conference call with analysts. “We are also seeing less upsell within our existing base as customers have slowed hiring and rationalized their employee counts.”

Like Datadog, Everbridge, whose software helps companies respond to emergencies, lowered its growth expectations for the full year on Tuesday. It now sees a larger loss than it had called for three months ago.

A weaker economy has led to “slower sales of large deals,” finance chief Patrick Brickley said on a conference call with analysts. Shares had slid almost 24% when the stock hit a session low of $22.17 per share.

Enfusion, Snowflake, Monday.com, Domo, SentinelOne, Smartsheet, Elastic, Zscaler and GitLab were all down at least 5% in Tuesday’s trading session, in addition to Datadog, Everbridge and RingCentral.

WATCH: Cramer’s Mad Dash on Datadog: The market has no appetite for a company like that

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August 8, 2023
Snowflake shares plunge 12% on guidance miss, acquisition of search startup Neeva
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The New York Stock Exchange welcomes Snowflake (NYSE:SNOW), on Tues. Dec 21st, 2021, to usher in the first day of winter.

NYSE

Shares of cloud data platform provider Snowflake slid more than 12% in extended trading on Wednesday after the company issued weak guidance in its earnings report and said it will acquire search startup Neeva for an undisclosed amount.

Here’s how the company did:

Earnings per share: 15 cents, adjusted, vs. 5 cents expected by analysts, according to Refinitiv

Revenue: $624 million vs. $608 million expected by analysts, according to Refinitiv

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The company’s revenue grew 48% year over year in the fiscal first quarter, but that growth was lower than the 85% increase year over year. The bulk of Snowflake sales come from product revenue, which expanded 50% year over year. Product revenue accounts for use of Snowflake’s software for storing and running queries on data stored in its system.

Snowflake said it anticipates product revenue will be between $620 million and $625 million in the fiscal second quarter. That would represent year-over-year growth between 33% and 34%.The projection came in well below the StreetAccount estimate of $649 million.

For the 2024 fiscal year, Snowflake called for product revenue of $2.6 billion. The StreetAccount consensus was $2.7 billion.

Snowflake also announced it plans to acquire Neeva, the privacy-focused search company co-founded by former Google executive Sridhar Ramaswamy. Benoit Dageville, Snowflake’s co-founder and president of products, wrote in a blog post that the company intends to “infuse and leverage” Neeva’s AI-equipped search products across its cloud services. Terms of the deal were not disclosed.

“Neeva allows us to tap into some of the most cutting-edge search technologies available to bring search and conversation in Snowflake to a new level,” Dageville wrote.

The acquisition comes days after Neeva, which was founded in 2019, said it would shut down its consumer search engine to focus on developing use cases for AI and large language models.

The company will hold its quarterly call with investors Wednesday at 5 p.m. ET.

— CNBC’s Ashley Capoot contributed reporting to this article.
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May 24, 2023
The tech IPO market collapsed in 2022, and next year doesn’t look much better

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The Nasdaq MarketSite in New York.

Michael Nagle | Bloomberg | Getty Images

Following a record-smashing tech IPO year in 2021 that featured the debuts of electric car maker Rivian, restaurant software company Toast, cloud software vendors GitLab and HashiCorp and stock-trading app Robinhood, 2022 has been a complete dud.

The only notable tech offering in the U.S. this year was Intel’s spinoff of Mobileye, a 23-year-old company that makes technology for self-driving cars and was publicly traded until its acquisition in 2017. Mobileye raised just under $1 billion, and no other U.S. tech IPO pulled in even $100 million, according to FactSet.

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In 2021, by contrast, there were at least 10 tech IPOs in the U.S. that raised $1 billion or more, and that doesn’t account for the direct listings of Roblox, Coinbase and Squarespace, which were so well-capitalized they didn’t need to bring in outside cash.

The narrative completely flipped when the calendar turned, with investors bailing on risk and the promise of future growth, in favor of profitable businesses with balance sheets deemed strong enough to weather an economic downturn and sustained higher interest rates. Pre-IPO companies altered their plans after seeing their public market peers plunge by 50%, 60%, and in some cases, more than 90% from last year’s highs.

In total, IPO deal proceeds plummeted 94% in 2022 — from $155.8 billion to $8.6 billion — according to Ernst & Young’s IPO report published in mid-December. As of the report’s publication date, the fourth quarter was on pace to be the weakest of the year.

With the Nasdaq Composite headed for its steepest annual slump since 2008 and its first back-to-back years underperforming the S&P 500 since 2006-2007, tech investors are looking for signs of a bottom.

But David Trainer, CEO of stock research firm New Constructs, says investors first need to get a grip on reality and get back to valuing emerging tech companies based on fundamentals and not far-out promises.

As tech IPOs were flying in 2020 and 2021, Trainer was waving the warning flag, putting out detailed reports on software, e-commerce and tech-adjacent companies that were taking their sky-high private market valuations to the public markets. Trainer’s calls appeared comically bearish when the market was soaring, but many of his picks look prescient today, with Robinhood, Rivian and Sweetgreen each down at least 85% from their highs last year.

“Until we see a persistent return to intelligent capital allocation as the primary driver of investment decisions, I think the IPO market will struggle,” Trainer said in an email. “Once investors focus on fundamentals again, I think the markets can get back to doing what they are supposed to do: support intelligent allocation of capital.”

Lynn Martin, president of the New York Stock Exchange, told CNBC’s “Squawk on the Street” last week that she’s “optimistic about 2023” because the “backlog has never been stronger,” and that activity will pick up once volatility in the market starts to dissipate.

Hangover from last year’s ‘binge drinking’

For companies in the pipeline, the problem isn’t as simple as overcoming a bear market and volatility. They also have to acknowledge that the valuations they achieved from private investors don’t reflect the change in public market sentiment.

Companies that were funded over the past few years did so at the tail end of an extended bull run, during which interest rates were at historic lows and tech was driving major changes in the economy. Facebook’s mega IPO in 2012 and the millionaires minted by the likes of Uber, Airbnb, Twilio and Snowflake recycled money back into the tech ecosystem.

Venture capital firms, meanwhile, raised ever larger funds, competing with a new crop of hedge funds and private equity firms that were pumping so much money into tech that many companies were opting to stay private for longer than they otherwise would.

Money was plentiful. Financial discipline was not.

In 2021, VC firms raised $131 billion, topping $100 billion for the first time and marking a second straight year over $80 billion, according to the National Venture Capital Association. The average post-money valuation for VC deals across all stages rose to $360 million in 2021 from about $200 million the prior year, the NVCA said.

Those valuations are in the rearview mirror, and any companies who raised during that period will have to face up to reality before they go public.

Some high-valued late-stage startups have already taken their lumps, though they may not be dramatic enough.

Stripe cut its internal valuation by 28% in July, from $95 billion to $74 billion, the Wall Street Journal reported, citing people familiar with the matter. Checkout.com slashed its valuation this month to $11 billion from $40 billion, according to the Financial Times. Instacart has taken a hit three times, reducing its valuation from $39 billion to $24 billion in May, then to $15 billion in July, and finally to $13 billion in October, according to The Information.

Klarna, a provider of buy now, pay later technology, suffered perhaps the steepest drop in value among big-name startups. The Stockholm-based company raised financing at a $6.7 billion valuation this year, an 85% discount to its prior valuation of $46 billion.

“There was a hangover from all the binge drinking in 2021,” said Don Butler, managing director at Thomvest Ventures.

Butler doesn’t expect the IPO market to get appreciably better in 2023. Ongoing rate hikes by the Federal Reserve are looking more likely to tip the economy into recession, and there are no signs yet that investors are excited to take on risk.

“What I’m seeing is that companies are looking at weakening b-to-b demand and consumer demand,” Butler said. “That’s going to make for a difficult ’23 as well.”

Butler also thinks that Silicon Valley has to adapt to a shift away from the growth-first mindset before the IPO market picks up again. That not only means getting more efficient with capital, showing a near-term path to profitability, and reining in hiring expectations, but also requires making structural changes to the way organizations run.

For example, startups have poured money into human resources in recent years to handle the influx in people and the aggressive recruiting across the industry. There’s far less need for those jobs during a hiring freeze, and in a market that’s seen 150,000 job cuts in 2022, according to tracking website Layoffs.fyi.

Butler said he expects this “cultural reset” to take a couple more quarters and said, “that makes me remain pessimistic on the IPO market.”

Cash is king

One high-priced private company that has maintained its valuation is Databricks, whose software helps customers store and clean up data so employees can analyze and use it.

Databricks raised $1.6 billion at a $38 billion valuation in August of 2021, near the market’s peak. As of mid-2021, the company was on pace to generate $1 billion in annual revenue, growing 75% year over year. It was on everybody’s list for top IPO candidates coming into the year.

Databricks CEO Ali Ghodsi isn’t talking about an IPO now, but at least he’s not expressing concerns about his company’s capital position. In fact, he says being private today plays to his advantage.

“If you’re public, the only thing that matters is cash flow right now and what are you doing every day to increase your cash flow,” Ghodsi told CNBC. “I think it’s short-sighted, but I understand that’s what markets demand right now. We’re not public, so we don’t have to live by that.”

Ghodsi said Databricks has “a lot of cash,” and even in a “sky is falling” scenario like the dot-com crash of 2000, the company “would be fully financed in a very healthy way without having to raise any money.”

Snowflake shares in 2022

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Databricks has avoided layoffs and Ghodsi said the company plans to continue to hire to take advantage of readily available talent.

“We’re in a unique position, because we’re extremely well-capitalized and we’re private,” Ghodsi said. “We’re going to take an asymmetric strategy with respect to investments.”

That approach may make Databricks an attractive IPO candidate at some point in the future, but the valuation question remains a lingering concern.

Snowflake, the closest public market comparison to Databricks, has lost almost two-thirds of its value since peaking in November 2021. Snowflake’s IPO in 2020 was the largest ever in the U.S. for a software company, raising almost $3.9 billion.

Snowflake’s growth has remained robust. Revenue in the latest quarter soared 67%, beating estimates. Adjusted profit was also better than expectations, and the company said it generated $65 million in free cash flow in the quarter.

Still, the stock is down almost 20% in the fourth quarter.

“The sentiment in the market is a little stressed out,” Snowflake CEO Frank Slootman told CNBC’s Jim Cramer after the earnings report on Nov. 30. “People react very strongly. That’s understood, but we live in the real world, and we just go one day at a time, one quarter at a time.”

— CNBC’s Jordan Novet contributed to this report.

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December 29, 2022