Lakehouse is a cloud-based platform used by data scientists and analysts. It enables companies to keep their data stored on third-party cloud servers like Amazon (AMZN -1.49%) Web Services. Companies looking to utilize artificial intelligence (AI) increasingly use the company's platform.
With AI technology accelerating, Databricks should have much more growth ahead of it. Given that growth potential, many investors can't wait to get their hands on its shares.Here's a look at how to invest in Databricks and some factors to consider when evaluating the company.
Are they publicly traded?
Is Databricks publicly traded?
Will Databricks have an IPO?
Databricks didn't have an initial public offering (IPO) on the calendar as of mid-2023. According to a report by The Information in late 2022, the company told its investors that it planned to launch an IPO by the summer of 2023. However, in June 2023, Databricks' CEO told Bloomberg those plans stalled because the "markets are shut down."
Investors might want to rein in their expectations before getting too excited about a potential Databricks IPO. Databricks has considered going public in the past. The company was on a path to complete an IPO in 2021 after its last private funding round. That would have been a prime time to go public due to sky-high investor interest in technology startups. With investor appetite for tech stocks cooling over the past year, the company may remain private until the IPO market heats back up.
How to invest
How to invest in Databricks
Even though Databricks isn't a publicly traded company, some investors can still buy an interest in its upside potential through EquityBee. The online platform allows accredited investors (i.e., those with a high net worth or a high income) to invest in venture capital-backed startups.
Accredited investors on EquityBee can fund employee stock options. In exchange, they will receive a percentage of the option's sale price when the company completes a liquidity event, like a sale or an IPO. Databricks is the third-most-popular startup with investors on the EquityBee platform.
Alternative options to investing in Databricks
There are alternative investment options for those who aren't accredited investors and want to gain upside exposure to the fast-growing cloud data sector before Databricks' IPO. They can invest in a publicly traded database company that competes with Databricks. Here are a couple of alternative options investors might want to consider:
- Snowflake (SNOW 1.25%): Snowflake's data cloud enables customers to store, process, and analyze data faster, easier, and with greater flexibility than legacy solutions.
- MongoDB (MDB -2.81%): MongoDB is a document database. Its flexible approach enables clients to start building applications without spending time configuring their database.
Should I invest?
Should I invest in Databricks?While most investors can't invest in Databricks yet, here are some factors to consider before investing in the company if it launches an IPO in the future.
Is Databricks profitable?
According to The Information, Databricks isn't profitable. That's common for a technology company still in an early growth phase. It often takes new technology companies years to reach profitability because they invest heavily in innovation and scaling the business.
Even some of Databricks' larger public competitors aren't yet profitable. For example, Snowflake reported a nearly $800 million net loss on a generally accepted accounting principles (GAAP) basis in its 2023 fiscal year. However, the company is profitable on a non-GAAP basis, generating $95.3 million of non-GAAP net income in fiscal 2023. It's also free-cash-flow-positive. The company produced $520.4 million of adjusted free cash flow in its 2023 fiscal year, converting 25% of its revenue into adjusted free cash flow. The cash-rich company (Snowflake had about $4 billion in cash, equivalents, and short-term investments on its balance sheet and no debt) has more money than it needs to expand the business. The extra cash allowed it to authorize a $2 billion share repurchase program in early 2023.
MongoDB also posted a GAAP operating loss in fiscal 2023 at $345.4 million. While the company was profitable on a non-GAAP basis (MongoDB reported $64.7 million of non-GAAP net income), its free cash flow was negative $24.7 million for the year.
Databricks' revenueDatabricks reported in late 2022 that its annual recurring revenue (ARR) run rate crossed the $1 billion milestone. The company is increasing revenue at a rapid clip. Databricks' ARR was around $350 million in 2020 and $600 million in 2021.
Databricks is one of many data software companies growing revenue briskly. Snowflake's revenue soared 69% in its 2023 fiscal year to almost $2.1 billion. Meanwhile, MongoDB's total revenue jumped 47% to almost $1.3 billion.
Related investing topics
Best Small-Cap Tech StocksNot all tech stocks are worth trillions, and not all tech stocks worth less than billions should be ignored by investors.
How to Invest in Mistral AI in 2023Learn about the new AI start-up Mistral AI and how the company intends to shake up generative AI.
Databricks' valuationDatabricks last raised money from private investors in August 2021. Its Series H round brought in $1.6 billion, giving it a valuation of $38 billion, representing a $10 billion valuation increase from its Series G round earlier that year.
However, much has changed in the technology sector since Databricks last raised money. Rising interest rates, a slowdown in tech-related spending, and banking sector issues have taken the wind out of the sails of the start-up market. As a result, The Information reported in late 2022 that Databricks cut its internal valuation to $31 billion. Meanwhile, some Databricks' investors reduced the value of their shares even further, with Fidelity reportedly slashing the value of its shares by 33%.
Given these issues, Databricks' potential IPO valuation could fall well below its private market value. However, in mid-2023, several media outlets suggested that Databricks was seeking a valuation in excess of $40 billion in an IPO.To put Databricks' valuation into context, Snowflake had an almost $60 billion market capitalization in mid-2023, while MongoDB's was almost $30 billion. Given that those database companies generate more revenue, are growing briskly, and are profitable on a non-GAAP basis, it seems likely that Databricks would trade at a much lower valuation than its current private market value if it goes public.
The bottom line
The bottom line on investing in Databricks
Databricks is one of the most exciting up-and-coming companies. It's increasing revenue rapidly as more companies utilize its Lakehouse Platform to manage their data, especially for AI applications. It's a highly anticipated IPO.
However, since it's not yet public, investors can take their time to fully analyze the company before buying shares. They can also consider some of its already public competitors like Snowflake and MongoDB, which are also growing fast and are closer to being profitable. They could be better investments over the long term, especially if Databricks launches its IPO at a rich valuation.
FAQs on investing in Databricks
Is Databricks on the stock market?
Databricks was not publicly traded as of mid-2023. Because of that, you can't buy shares on the stock market in a brokerage account.