How to Invest in Databricks IPO: Buy Databricks Stock

Founded in 2013 and headquartered in San Francisco, Databricks is an analytics company utilizing artificial intelligence, commonly known as AI. It’s responsible for spearheading the “lakehouse” architecture to organize data on “the cloud.”

Lakes refer to large amounts of data, while warehouses refer to organized structures or sets of processed data. This works akin to well-tuned factories but online. And this factory is essentially a leasable and digital powerhouse made by Databricks.

The company operates in 12 different countries, with some countries having multiple offices. It lists world-leading firms such as Amazon, Google, Microsoft, and Alibaba as a few of its partners.

CNBC recently upgraded its position to number 34 (of 50; one being best) from number 37 in 2021 on its list, “CNBC Disruptor 50.”

In August 2021, Databricks announced that it generated 600 million USD in annual recurring revenue (ARR), an increase of 75% year-over-year. By February 2022, TechCrunch reported an ARR of 800 million, on track for 1 billion.

In October 2021, the company purchased German no-code company 8080 Labs for an undisclosed amount. This places it as a top contender for producing no-code or low-code solutions, enabling non-computer science professionals to work with its technology and realize the benefits of AI-powered data management.

Likely due to the recent cuts in fintech company valuations by virtue of 2022/23’s bear market, the company has not yet provided an IPO date. However, a reasonable market estimation is by 2024. This could change pursuant to the status of the S&P 500’s current bear market. IPOs are unlikely to occur during a prolonged bear market.

The company’s meteoric rise from launch to 38 billion USD in eight years and its almost-shocking 1.6 billion USD Series H round make it a hotly anticipated IPO. Yet investors must continue to wait as the private startup navigates “six months at a time.”

Its major investors include:

• Counterpoint Global (of Morgan Stanley)
• Baillie Gifford
• ClearBridge Investments
• Andreessen Horowitz
• BlackRock
• Canada Pension Plan
• Fidelity
• Franklin Templeton

A top-tier list such as the above suggests that it receives substantial advice and guidance. Further, it has no urgent need for cash, particularly as it also has also received support from all four leading cloud providers: Amazon, Google, Microsoft, and Salesforce.

Yes, you can order Databricks shares before the IPO. This is known as a “pre-placement.” In theory, several brokers may allow you to do just that. However, the only one which has already announced it will make an effort to give access to Databricks IPO is Freedom24.

Among other brokers, TradeStation has not announced if and when it will become available but seems open to it since they offer access to US IPOs. Please take a look at both:

1# Freedom24

Founded in 2008, Freedom Finance, the official company name of Freedom24, has already offered to its 400,000+ worldwide clients participation in 280+ IPOs, including 40,000+ trade stocks, 1,500+ ETFs, 1,000+ US Stock Options, and 147,000+ bonds on the largest exchanges in Europe, Asia, and the US.

With Freedom24, the process to participate before the IPOs feels incredibly straightforward:

1. Open an account with a minimum of 2,000 USD (the minimum for an IPO request);
2. Submit a request for the available IPO stocks before their respective IPO dates;
3. Freedom24 automatically credits your account with those shares purchased by them on your behalf (“oversubscribed” IPOs may make it difficult for your orders to be filled completely);
4. Sell your stocks after the 93-day lock-up period or purchase a forward sale contract through Freedom24 to lock your gains before the 93 days period.

To invest in Databricks’ IPO, you will technically become a Freedom Finance client. Nothing to worry about here, that’s simply the name of the broker running the platform Freedom24. 

Want to know more about Freedom24? Check our Freedom24 review.

2# TradeStation

Founded in 1982, TradeStation is a US broker committed to offering you the best trading experience within their rewarded platforms and brokerage services. You can trade stocks, ETFs, options, futures, and crypto with competitive pricing models.

With TradeStation, you must follow these steps:

1. Open an account with a minimum of 500 USD;
2. Download the ClickIPO app (Available both on iOS and Android);
3. Register on ClickIPO’s trading platform and select TradeStation as your broker;
4. Link your TradeStation account in the “My Account” section of the ClickIPO app

For US residents, you have zero commission trades (including the IPO stocks). For international investors, please consult their pricing here.

There is no guarantee that TradeStation will offer Databricks’ IPO, still, the optionality is there. We encourage you to follow the company and wait for their official announcement. After that, ask TradeStation if they will offer it.

While this often boils down to knowledge and investing experience, you can earn a profit by investing in IPOs. Between the two brokers mentioned above, Freedom24 is the only one that provides statistical figures for its past IPO offering. So, we will present it here as a result.

Freedom24 has so far provided 265 companies, in stocks of which approved clients have been able to invest at IPO prices. On average, they earned a 53% return by the end of the stock’s lock-up period.

We strongly suggest entering your email (no strings attached!) to receive the latest statistics from Freedom24.

Generally, investing in an IPO is riskier than investing in a stock already known to the public market, either through an American exchange like the NYSE or a European exchange like the LSE.

However, a few essential items remain on your analytical checklist, no matter the stock or sector:

1. Gross revenue (“top line”)
2. The revenue drivers, such as active user or member growth
3. Profit margins, often EBITDA as a percentage of top line; EBITDA means “earnings before interest, tax, depreciation, and amortization”
4. Its private valuation growth, earned whenever a private capital raising with major investors, hedge funds, or banks occurs
5. Cumulative funding and current (pre-IPO) investors
6. The management team
7. Its competitors

If an “IPO Filing” has already occurred, a great place to start is taking the time to read through any stock’s original prospectus available on SEC. This helps cut through the noise and hype typically surrounding an IPO.

Finding such information prior to an IPO filing remains difficult, yet reputable trade journals such as Forbes, WSJ, Crunchbase, or TechCrunch provide meaningful estimates.

With respect to Databricks’ IPO, the below estimates are currently available, noting it is in USD:

1. Revenue in 2022: +1.3 billion, a 62.5% increase over 2021’s 800 million
2. Customer count: over 7,000
3. Private valuation: 38 billion, a 36% increase over the last founding round
4. Total cumulative funding: 3.5 billion
5. Investors include: substantial; please see above
6. Management: CEO Ali Ghodsi was one of the creators behind Apache Spark, and also serves as an adjunct professor for UC Berkeley
7. A close parallel is Snowflake, which already went public in September 2020

And there you have a quick snapshot of Databricks. It’s important to remember that you want to see consistent growth over several years (at least three) without any breaks in momentum.

In this scenario, where a company reveals limited information, particularly concerning their income statement and balance sheet, tracking their customer growth and investor base is vital. If multiple independent trade journals or conferences also rate their products highly, the company could be a winner.

However, a clear hesitation to reveal financials suggests an inordinate amount of spending, which almost always draws intense scrutiny. This data becomes available in an IPO filing.

The Bottom Line

We’re excited about Databricks’ IPO. It has garnered an incredible valuation at 38 billion USD in eight years and is earning almost a billion a year in top-line revenue.

It’s clear the company tapped into a new market, captivating the likes of Amazon and Microsoft. While the “smart money” follows Databricks, investors should never turn complacent. Any growth story needs consistency and solid financials.

Databricks might provide the +50% return you’re looking for, but we suggest you conduct your own research or sit down with a professional advisor. Why not take a look at all of Freedom24’s upcoming IPOs and make a list? Or simply wait for any announcement from TradeStation and then decide which broker to use? It’s your call.