Technology stocks, cloud names included, recently encountered some weakness, but the case for strategies such as the WisdomTree Cloud Computing ETF (WCLD) remains strong and a recent string of cloud initial public offerings (IPOs) proves as much.
The WisdomTree Cloud Computing Fund seeks to track the price and yield performance, before fees and expenses, of the BVP Nasdaq Emerging Cloud Index, an equally weighted index designed to measure the performance of emerging public companies focused on delivering cloud-based software to customers.
Led by Snowflake, the cloud IPO arena has recently been busy and while not all of these names will find their way into WCLD, appetite for new cloud fare points to long-term potential for funds such as the WisdomTree cloud offering.
“Snowflake, a cloud data warehouse provider, was the blockbuster IPO of the week ending September 18. The company priced its offering at $120 per share, raising $3.36bn and valuing the company at approximately $33.5bn,” said WisdomTree analyst Kara Marciscano in a recent report. “Notably, Snowflake’s IPO price was 50% above the midpoint of the initial range estimated just a week prior. The increase in price reflected mounting demand for the company’s public debut, including investments from Berkshire Hathaway and Salesforce.2 Snowflake began trading on September 16 at $245/share, about 100% above its IPO price! As of this writing, Snowflake is valued at 164x trailing 12-month (TTM) sales.”
Cloud Call
Cloud computing represents a significant source of disruption not only in the technology sector but in the investment world as well. It has become ingrained in nearly every aspect of our lives by fundamentally altering how we consume, process, and share information in the digital age. The trend toward cloud-based solutions offers a compelling, long-term opportunity for investors to gain exposure to a quickly developing segment of the technology sector.
“Given that the median public cloud company valuation is near a five-year high, the influx of IPOs is no surprise—raising capital at potentially premium valuations is attractive for private shareholders,” notes Marciscano.
A frequently voiced concern regarding cloud stocks, regardless of age, is that the group is richly varied and that those frothy valuations can lead to punitive pullbacks. However, data indicate many WCLD components are delivering sales growth to merit high multiples.
“Valuations appear to reflect continued strength in top-line growth over at least the next 12 months. The median WCLD constituent is forecasted to deliver 20% revenue growth over the next 12 months, well above the 6% forecast for the Nasdaq 100 Index,” according to Marciscano.
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