Markets will reward investors who buy software firms that report profits. Progress Software (PRGS) is one of them. Conversely, Snowflake’s (SNOW) latest $2 billion debt issuance to buy back stock is a major red flag.
Progress stock soared by 11.85% on Wednesday after posting revenue of $179 million (+2.3% Y/Y. It earned $1.26 a share (non-GAAP). CEO Yogesh Gupta said that the firm is excited about its proposed acquisition of ShareFile, announced two weeks ago.
Progress will suspend its quarterly dividend. It will use the funds to repay the debt incurred from the ShareFile acquisition.
Snowflake is at risk of falling below $100. On September 23, 2024, it announced a $2 billion convertible note offering. It is using up to $575 million to buy back stock. The rest of the funds will cover general corporate purposes.
This dilution is bad news for shareholders but great news for underwriters, who earn significant fees. Risks are high that Snowflake will reward its executive team with generous compensation. As a result, shareholders will suffer in the long run.
In mid-August, Warren Buffett disclosed that Berkshire Hathaway sold its entire six million shares of SNOW stock. When Frank Slootman abruptly quit in February 2024, it suggested trouble ahead.
Snowflake faces rising competition from Databricks. What is worse is that the data-sharing ecosystem is not as sticky as it used to be.
