Snowflake plans $2 billion convertible note offering

BOZEMAN, Mont. - Snowflake Inc . (NYSE: NYSE:SNOW), specializing in AI Data Cloud services, today announced plans for a private placement of $2 billion in Convertible Senior Notes, with the offering divided evenly between notes due in 2027 and 2029. This move is aimed at qualified institutional buyers, in compliance with Rule 144A under the Securities Act of 1933.

The notes, which are unsecured and will accrue interest payable semiannually, may be converted into cash, shares of Snowflake’s Class A common stock, or a combination thereof, at the company’s discretion. Specific terms, such as the interest rate and initial conversion rate, will be determined upon pricing of the offering.

Snowflake intends to allocate the net proceeds from this offering to finance capped call transactions, which are expected to reduce stock dilution upon conversion of the notes or offset cash payments Snowflake must make above the principal amount of converted notes. Additionally, up to $575 million from the proceeds will be used to repurchase shares of its common stock in privately negotiated transactions, which will count towards its stock repurchase program authorized in February 2023 and expanded in August 2024.

The capped call transactions and stock repurchases may influence Snowflake’s common stock market price, potentially impacting the trading price of the notes and the initial conversion price. The company notes that the securities offered have not been registered under the Securities Act or any state securities laws and may not be sold in the United States without registration or an applicable exemption from registration requirements.

This announcement is based on a press release statement from Snowflake Inc. and contains forward-looking statements about the proposed offering, use of proceeds, and potential market effects. These statements are subject to risks and uncertainties that could cause actual results to differ materially.

In other recent news, Snowflake Inc. reported a 30% year-over-year increase in product revenue, reaching $829 million for its second quarter of fiscal year 2025. The company has raised its full-year product revenue outlook in response to its strong performance. Deutsche Bank has maintained its Buy rating on Snowflake, but adjusted its price target to $180, down from $220. This adjustment follows the company's second-quarter results which, despite solid bookings and stabilization in consumption, did not yield a substantial enough revenue beat to significantly boost the stock's performance. Deutsche Bank remains optimistic about Snowflake's long-term prospects, particularly given the company's strengths such as its multi-cloud capabilities, ease of use, extensibility, and network effects. These recent developments suggest that Snowflake continues to operate in a vast market with ample growth opportunities. Despite investor concerns about the translation of new features and AI investments into consumption revenue, the company's management has increased the full-year Product revenue guidance to a 26% year-over-year growth.

InvestingPro Insights

As Snowflake Inc. (NYSE: SNOW) announces its strategic financial maneuver through a private placement of Convertible Senior Notes, the company's current financial health and market performance provide valuable context for investors. Snowflake holds a market capitalization of $37.95 billion and maintains a robust cash position, adhering to one of the InvestingPro Tips which highlights the company's strength in holding more cash than debt on its balance sheet. This financial resilience is key as the company navigates the capital markets.

Despite not being profitable over the last twelve months, with a reported operating income margin at -38.89%, Snowflake is trading at a high revenue valuation multiple, indicating that investors may be pricing in the company's growth potential and market position in the AI Data Cloud sector. The company's aggressive share buyback strategy, as noted in another InvestingPro Tip, could signal management's confidence in the company's value proposition and future prospects.

Investors should note that Snowflake's stock has experienced significant volatility, currently trading near its 52-week low and having taken a substantial hit over the last six months, with a six-month price total return of -30.66%. This could be an opportune moment for the company to repurchase shares, potentially providing a cushion against further price declines and underscoring the rationale behind the current offering.

For those looking to delve deeper into Snowflake's financial metrics and strategic outlook, InvestingPro provides additional insights and tips. Currently, there are 9 more InvestingPro Tips available for Snowflake at https://www.investing.com/pro/SNOW, offering a comprehensive view of the company's financial landscape and future earnings potential.

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