Databricks' Public Offering: SPAC or IPO in 2025?

Databricks, a data lakehouse specialist, is considering a public offering in 2025. The company has been compared to Snowflake and Palantir, but its IPO may not make sense given the negative three-year average return of -58% for de-SPAC events, according to a University of Florida study. Traditional IPOs through investment banks may be a better option. Databricks could benefit from bullish AI tailwinds, but its valuation narrative comes with risk factors.

Databricks, a leading data lakehouse specialist, is contemplating a public offering in 2025. The company, valued at $62 billion and with a reported annual recurring revenue (ARR) of $3.7 billion, has been compared to Snowflake and Palantir. However, the decision to go public may not be straightforward, given the recent performance of special purpose acquisition companies (SPACs) and the potential risks associated with a public offering.

A study conducted by the University of Florida found that between 2012 and 2022, the three-year average return following a de-SPAC event was negative 58% [1]. Technology, including AI-driven companies like Databricks, has been one of the poorest performing sectors in this context, with median de-SPAC returns of negative 56% between 2009 and 2025 [1]. This underscores the challenges that come with SPACs, making traditional IPOs through investment banks a potentially more attractive option.

Databricks could benefit from the current bullish AI tailwinds, with the S&P 500 and Nasdaq Composite hovering near all-time highs. However, the company's valuation narrative also comes with significant risk factors. Investor expectations are continually rising in the hot AI market, and any initial pop in Databricks' share price could lead to heightened scrutiny and pressure around earnings reports. Should the company miss growth targets or fail to captivate Wall Street, the share price could plummet.

Moreover, the risk of overlapping with the peak of a bubble is a concern. Snowflake's IPO in late 2020 serves as a cautionary tale, with its price-to-sales (P/S) multiple peaking at 184 shortly following the IPO. Today, Snowflake is trading at a P/S of just 18.5, far lower than many leading software-as-a-service (SaaS) stocks. Given Databricks' reported ARR of $3.7 billion, which is in the ballpark of where Snowflake ended last fiscal year, investors may begin to view Databricks as the "next Snowflake," potentially leading to challenges in differentiation.

While Databricks' growth and unique AI infrastructure could lead to a successful IPO, the company faces considerable risk to its price action post-IPO. The market continues to digest frothy conditions, and comparable businesses like Palantir and Snowflake are already established in the public eye. Therefore, a well-executed traditional IPO through investment banks might be a more prudent path for Databricks in 2025.

References:
[1] https://www.fool.com/investing/2025/07/30/will-databricks-spac-or-ipo-in-2025/