Snowflake $Snowflake(SNOW)$ was once one of the investment darlings due to Warren Buffett’s 0.3% stake in Snowflake within his Berkshire Hathaway portfolio.
The year-to-date return is -32%. It is currently trading at USD127.60, which is 68% below its all-time high of USD 401.89.
The main reasons for its poor stock performance are:
Slowing Revenue Growth: Its revenue growth has slowed down drastically. For example, the average quarterly year-over-year revenue growth in 2022 was 106%, but it is now 32% in the latest quarter (1Q2025).
High Valuations: Investors are growing impatient with its high valuations. The forward P/E ratio is 185x. I often think that a company needs to turn profitable before its revenue growth slows down drastically; otherwise, the premium valuations are not sustainable. Snowflake has failed to turn profitable amid the revenue slowdown, and investors may prefer other profitable big tech companies with cheaper valuations that provide similar revenue growth.
CEO Departure: The abrupt departure of Snowflake CEO Frank Slootman has added to the uncertainty.
The current addressable market for data warehousing that Snowflake is in is $67-87 billion. Snowflake is currently the market leader with a 21% share, while competitors Amazon Redshift, Google BigQuery, and SAP Business Warehouse have market shares of 17%, 13%, and 12%, respectively.
Snowflake should continue to grow its revenue at an even faster pace due to its huge total addressable market. However, it fails to deliver amid intense competition, particularly from similar offerings by public cloud providers.
In conclusion, I do not like Snowflake due to its poor risk-to-reward ratio. Investors should only start to pay attention to Snowflake when its revenue growth picks up rapidly and/or operating income turns positive.
Instead, investors should focus on other larger cloud players like Amazon $Amazon.com(AMZN)$ , Microsoft $Microsoft(MSFT)$ , and Alphabet $Alphabet(GOOG)$ .
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