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’s bear market, the company has not yet provided an IPO date (despite the rebound in 2023). 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.

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.