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- DragonsssDragonsss
  ·2021-06-17
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- DragonsssDragonsss
  ·2021-06-17
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  Snowflake: A Very Aggressive Bet On The Future Of The Data Cloud
  Summary Snowflake has only recently started to recover after the long decline from an all time high
  Snowflake: A Very Aggressive Bet On The Future Of The Data Cloud
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- DragonsssDragonsss
  ·2021-06-17
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Snowflake was at the time of its IPO, a unprofitable software company, which is why it was interesting that Warren Buffett's Berkshire Hathaway (NYSE:BRK.A) , which normally eschews investing in software or cloud companies actually wound up&nbsp;investing $735 million or 6.1 million Snowflake shares at the $120 IPO price.</p>\n<p>On September 18, 2020, CEO Frank Slootman,in an interview, disclosed that Berkshire's insurance unit has been using Snowflake's services for quite awhile and that might be part of the reason that Berkshire was comfortable enough to invest in Snowflake's stock. The Slootman interview also disclosed that Snowflake's interactions with Berkshire have been through Todd Combs, the CEO of Berkshire holding GEICO. Since Todd Combs also serves as a Berkshire investment manager, he is probably the one directly responsible for the Snowflake investment and not Buffett.</p>\n<p>Salesforce Ventures (NYSE:CRM)&nbsp;also decided to make an investment&nbsp;of more than $500 million in the company at the IPO, as a play on digital transformation and long term cloud adoption. Snowflake's stock soared in the months following its IPO, partially due to investors being interested in the fastest growing of all the fast growing digital transformation plays and partially due to Snowflake receiving the seal of approval from both Berkshire and Salesforce.</p>\n<p>Snowflake finally ended up reached an all time high of $429.00 within the December 8th market session, at which point Snowflake was selling for 245x Sales and was already being called \"The Most Highly Valued Large Cap Company in History\".</p>\n<p>Eventually, due to&nbsp;fears of rising interest rates and inflation, investors began losing enthusiasm for stocks selling at high valuations and nervous investors have since sold Snowflake's stock down to the point where it had reached all time lows of $184.71 per share on May 13. Since, then the stock has risen slightly over 30% and the question now becomes for investors, \"Is Snowflake a buy at current prices, even though, the company still sells for around 85X sales?\"</p>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/324a101dce1df05ccb338b782dd193d3\" tg-width=\"635\" tg-height=\"419\"><span>Data by YCharts</span></p>\n<p>This article will go through some of the reasons why many investors are still very infatuated with Snowflake and also go through recent earnings, as well as explain why I consider Snowflake a buy for very aggressive investors.</p>\n<p><b>Snowflake CEO Frank Slootman</b></p>\n<p>Snowflake was founded in July 2012 by two former Oracle (NYSE:ORCL) engineers Benoit Dageville and Thierry Cruanes, along with Marcin Żukowski, co-founder of the Dutch start-up Vectorwise. The first CEO of Snowflake was Mike Speiser, a venture capitalist at Sutter Hill Ventures. In June 2014, Snowflake appointed former Microsoft (NASDAQ:MSFT) executive Bob Muglia as CEO, as the company emerged from stealth mode.</p>\n<p>In May 2019, the company decided to change the leadership team again to Frank Slootman, the retired former CEO of ServiceNow (NASDAQ:NOW), who joined Snowflake as its CEO and Michael Scarpelli, the former CFO of ServiceNow who joined Snowflake as CFO.</p>\n<p>In an&nbsp;article Beth Kindig wrote for Forbes&nbsp;near the date of the IPO, she indicated that the change of CEOs from Bob Muglia to Frank Slootman likely occurred because of pressure from private investors that wanted leadership from someone that had a proven track record of showing that they could grow an enterprise tech company very quickly and who also could make a successful profitable exit for investors in an IPO. Investors got that type of CEO in Frank Slootman, who has a type of \"Rockstar\" status among CEOs.</p>\n<blockquote>\n “He’s one of the most impressive, most accomplished, most respected CEOs in enterprise tech,” said Asheem Chandna, a software investor at Greylock Partners, which invested in the first two companies Slootman took public, Data Domain (later acquired by EMC and now part ofDell) and ServiceNow. “He’s a take-no-prisoners leader. He can point at a hill and inspire the entire team to follow him to take the hill.”\n</blockquote>\n<blockquote>\n Source:CNBC\n</blockquote>\n<p>Frank Slootman already had a rich history that involved turning around a company called Data Domain, which was detailed in his book “TAPE SUCKS: Inside Data Domain, A Silicon Valley Growth Story”. When Slootman first took over Data Domain in 2003, the company had no customers, no revenues, and was a few months away from bankruptcy. In six years, Slootman grew Data Domain to the point where it was selling more than all of its competitors combined. Slootman then successfully sold the company to EMC (NYSE:DELL) in 2009 for $2.1 billion and the&nbsp;Data Domain product line has been Dell EMC's flagship platform&nbsp;for backup, archive and disaster recovery ever since.</p>\n<p>Two years later, Slootman took over the CEO role of ServiceNow between 2011 to 2017. Part of Slootman's accomplishments at ServiceNow was guiding the company to a 2012 IPO.</p>\n<p>For individuals that think that&nbsp;the role of the CEO is essential for a company's success, Snowflake has perhaps one of the best CEOs in the tech sector and the presence of CEO Frank Slootman alone, should be reason enough to consider Snowflake as an investment.</p>\n<p><b>The Data Cloud</b></p>\n<p>Snowflake is a cloud native company that offers unlimited storage and compute in the cloud in a manner designed to be flexible and convenient for companies. Snowflake was built with the purpose of replacing legacy&nbsp;data warehouses. The Snowflake platform is essentially a complete redesign and reimagining of data warehouse architecture and technology</p>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/f08eef11f814a575de7b02b82c5f49bb\" tg-width=\"640\" tg-height=\"176\"><span>Source:Snowflake Presentation titled \"A Detailed View Inside Snowflake\"</span></p>\n<p></p>\n<p>The problem with how many companies handle data today, is that they have what is known as a&nbsp;siloed data&nbsp;problem. Siloed data simply means that the same information is often stored in different databases, leading to inconsistencies between data located in different parts of the company. Siloed data also often makes it difficult to join data to gain new insights or have the ability to act quickly on any new data.</p>\n<p>Snowflake gives company's the ability to join all of their data together and eliminate discrepancies between data from different sources, and reduce&nbsp;data latency. With joined data and reduced data latency, comes the ability for companies to use new incoming data quickly and this is a huge driver for Snowflake's business. When companies become Snowflake customers, they often find that what used to take hours or days to go through data now only takes minutes.</p>\n<p>With Snowflake's innovations, data is now moving from an era of simply informing people to driving operations right as the information signals come in with very little latency. No more will important business decisions be done with only anecdotal observation. Business decisions will increasingly be data driven. That is what digital transformation actually means for a business.</p>\n<p>Every business, in order to survive will eventually have to digitally transform and Snowflake is becoming an essential building block for digital transformation. The&nbsp;<b>Data Cloud</b>is the building block of digital transformation and Snowflake is evolving to become the largest independent&nbsp;<b>Data Cloud</b>.</p>\n<p><b>Data Sharing</b></p>\n<p>Anyone that has a Snowflake account is capable of sharing data. Data sharing is about to become an additional important business for Snowflake. Snowflake has already built a Data Marketplace and is on the verge of starting to really monetize it. Just recently,Snowflake announced&nbsp;that it was accelerating data collaboration with more than 500 Listings in the Snowflake Data Marketplace.</p>\n<p>Business will be able to search for what data is being offered on the Data Marketplace with some of the data offers being for free and some data offers for pay. The Snowflake management team expects that in the future, data networking will become frictionless and that today, we are on the beginning edges of a true data exchange network application.</p>\n<p>Snowflake expects data sharing to become a big part of their business moving forward and eventually a big part of any future moat because data sharing can translate into powerful&nbsp;network effects, in that the more businesses use the data sharing through Snowflake's market, the more valuable the Snowflake Data Market will become.</p>\n<p><b>Snowflake Architecture</b></p>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/4f8ac65aba89c4df78926d8b9684c24d\" tg-width=\"640\" tg-height=\"363\"><span>Source:Snowflake Presentationtitled \"A Detailed View Inside Snowflake\"</span></p>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/8494b11b7683d8c1c9aa35501c234e01\" tg-width=\"640\" tg-height=\"439\"><span>Source:Snowflake User Guide</span></p>\n<p>Snowflake’s novel design consists of three components:</p>\n<ol>\n <li><b>Storage</b>: the persistent storage layer for data stored on Snowflake</li>\n <li><b>Compute</b>: a collection of independent compute resources that execute data processing tasks required for queries. Snowflake also describes this compute as virtual warehouses.</li>\n <li><b>Services</b>: a collection of system services that handle infrastructure, security, metadata, and optimization across the entire Snowflake system</li>\n</ol>\n<p>Snowflake has a decoupled architecture that allows for compute and storage to scale separately. The database storage can be provided from any cloud provider that the customer chooses.</p>\n<p>Query processing or compute takes place in what Snowflake calls virtual warehouses. To simplify things for people that are not data experts, a&nbsp;<b>query</b>&nbsp;is a request for data&nbsp;or information from a database table or combination of tables. Query processing is simply using the compute resources to perform a search for data.</p>\n<p>Snowflake uses massively parallel processing or MPP, in the compute/virtual warehouse setup to process queries.Massively parallel processing&nbsp;is a form of collaborative processing of the same program by two or more processors or in this case virtual warehouses. The advantage of using MPP in the virtual warehouse setup is that the virtual warehouses can access the storage layer independently so as not to compete for compute power.</p>\n<p>Snowflake's virtual warehouses have the ability to access any of the databases in the database storage layer to which they have been granted access, and these virtual warehouses can be created, resized and deleted dynamically as resource needs change. When virtual warehouses execute queries, they transparently and automatically cache data from the database storage layer. Snowflake has the advantage of being able to dynamically bring together the storage, compute and services layers, delivering exactly the resources needed exactly when they are needed, meaning that under a multitude of different usage scenarios, Snowflake is able to dynamically create the right balance of IO, memory, CPU, etc.</p>\n<p>Traditional data warehouse, on the other hand, will often tightly couple the storage, compute, and database services. The disadvantage of doing this is there are performance limitations as the number of workloads and users increase, meaning such a configuration is not very scalable.</p>\n<p>Snowflake's competitors, such as Amazon's (NASDAQ:AMZN) Redshift, for instance, can be disadvantaged when having the compute and storage so tightly coupled, because more often than not more time must be spent manually reconfiguring things, which is a disadvantage.</p>\n<p>One of Snowflake’s&nbsp;unique value propositions&nbsp;is the company’s relatively flexible business model compared to its peers. Snowflake touts this ability on its website:</p>\n<blockquote>\n “Whether you’re a business or technology professional, get the performance, flexibility, and near-infinite scalability to easily load, integrate, analyze and securely share your data.”\n</blockquote>\n<blockquote>\n Source:Snowflake\n</blockquote>\n<p>Snowflake's virtual data warehouse setup where workloads share the same data but can run independently, makes it easier for customers to run smaller workloads. Snowflake management calls this the ability to scale down. When a company joins Snowflake, it does not require a big upfront commitment like it might with other companies. Snowflake allows customers to fully customize their services with an ability to scale down to whatever level is needed. Companies only have to pay for the services they need, instead of having to pay for big bulked up packages containing unnecessary services.</p>\n<p>Snowflake’s competitors, on the other hand, often combine compute, storage and services, then require customers to size and pay based on the largest workload, which can make some data warehouses completely unaffordable or inefficient for some companies.</p>\n<p>Snowflake's documentation&nbsp;claims that the Snowflake data platform is not built on any existing database technology or “big data” software platforms such as&nbsp;Hadoop. Instead, Snowflake combines a completely new SQL query engine with an innovative database architecture natively designed for the cloud. This database and query engine helps Snowflake perform faster queries with fewer errors and costs over competitors.</p>\n<p>I don't want this explanation to get too technical for those not familiar with databases, storage or how the cloud works, so for those that want a more technical explanation of Snowflake's architecture, they can read Snowflake's&nbsp;documentation. or read a&nbsp;Snowflake Presentation&nbsp;titled \"A Detailed View Inside Snowflake\".</p>\n<p><b>C3 AI and Snowflake Partner</b></p>\n<p>Before going through earnings, I wanted to highlight&nbsp;some very recent news&nbsp;of a new collaboration between C3.ai (NYSE:AI) and Snowflake. C3 AI is an enterprise AI software provider that provides a suite that provides comprehensive services to build enterprise-scale AI applications more efficiently and cost-effectively than alternative approaches.</p>\n<p>This partnership will give companies that currently use Snowflake access to the C3 AI® Suite and pre-built C3 AI applications that include a range of industries and enterprise AI use cases, including AI-based CRM, predictive maintenance, supply network optimization, and fraud detection.</p>\n<blockquote>\n C3.ai's chief product officer, Houman Behzadi, said the partnership \"will create significant time and operational efficiencies for Snowflake's customers and solidify Snowflake as the operational data platform of choice for enterprise AI applications.\"\n</blockquote>\n<blockquote>\n Source: C3.ai's chief product officer, Houman Behzadi -ZDNet\n</blockquote>\n<p><b>Snowflake Q1 FY 2022 Earnings</b></p>\n<p>Snowflake's Q1 FY 2022 remaining performance obligations or RPO was $1.4 billion, representing 206% year-over-year growth. The RPO results reflected more multimillion-dollar relationships with particular strength in the telecom and technology sectors. Of the $1.4 billion in RPO, Snowflake expects approximately 54% to be recognized as revenue in the next 12 months.</p>\n<p>Snowflake defines RPO in its&nbsp;earnings press release&nbsp;as the amount of contracted future revenue that has not yet been recognized, including both deferred revenue and non-cancelable contracted amounts that will be invoiced and recognized as revenue in future periods.</p>\n<p>RPO excludes performance obligations from on-demand arrangements and certain time and materials contracts that are billed in arrears.<b>RPO is not necessarily indicative of future product revenue growth because it does not account for the timing of customers’ consumption or their consumption of more than their contracted capacity</b>.</p>\n<p>At the end of Q1, Snowflake had 4,532 total customers. The total number reflects the addition of 393 net new customers in Q1, including three seven-figure new customers. Several of these customer wins might be recognizable names to investors that include Datadog (NASDAQ:DDOG) and Walgreens Boots Alliance (NASDAQ:WBA) and Equifax (NYSE:EFX).</p>\n<p>Snowflake management has stated that they have a strong interest in penetrating more of the largest enterprises globally because they provide the largest opportunity for account expansion. On that note, Snowflake now has 104 customers with trailing 12-month product revenue greater than $1 million, up from 77 last quarter. CFO Michael Scarpelli had some interesting things to say about Snowflake expanding with large customers that shows why the company's products are gaining fans among large enterprises</p>\n<blockquote>\n When we expand within our largest customers, we typically replace more than one solution. In many cases, we replace on-premise and first-generation cloud solutions, and we address new workloads.\n <b>Snowflake creates use cases that were previously impossible</b>. This is what fuels our 168% net revenue retention rate, and we remain confident that our net revenue retention will stay above 160% for the fiscal year.\n</blockquote>\n<blockquote>\n Source: CFO Michael Scarpelli -Snowflake Q1 FY2022 Earnings Call\n</blockquote>\n<p>Snowflake's&nbsp;net revenue retention rate of 168% is probably the best&nbsp;number in the SaaS world. Snowflake calculates their net retention number by first specifying a measurement period consisting of the trailing two years from the current period end. Next, Snowflake defines the measurement cohort as the population of customers under capacity contracts that used the platform at any point in the first month of the first year of the measurement period. The net revenue retention is then defined as the quotient obtained by dividing the product revenue from the cohort in the second year of the measurement period by the product revenue from this cohort in the first year of the measurement period.</p>\n<p>So a net retention rate of 168% means that the customer cohort that spent $100 on average in the first year of the measurement period on the Snowflake platform is spending on average $168 in the second year of the measurement period.. Any customer in the cohort that did not use the platform in the second year remains in the calculation and simply contributes zero product revenue in the second year.</p>\n<p>Snowflake grew product and total revenues grew 110% year over year to $229 million. Product revenue grew to $214 million, reflecting strength in Snowflake consumption. Product revenue is a key metric for Snowflake because revenue is recognized based on platform consumption, which is inherently variable at the customers discretion, and not based on the amount and duration of contract terms. Professional services and other revenue was 15 million.</p>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/b09f8c93a8df1f1ad6663d3c88240f18\" tg-width=\"635\" tg-height=\"419\"><span>Data by YCharts</span></p>\n<p>As explained in Snowflake's&nbsp;Q1 FY2022 earnings release, product revenue primarily includes compute, storage, and data transfer resources, which are consumed by customers on Snowflake's platform as a single, integrated offering. Snowflake customers have the ability to consume more than their contracted capacity during the contract term and may have the ability to roll over unused capacity to future periods, generally on the purchase of additional capacity at renewal.</p>\n<p>Snowflake's consumption-based business model distinguishes the company from subscription-based SaaS companies that generally recognize revenue ratably over the contract term and may not permit rollover of services. Because customers have flexibility in the timing of their consumption, which can exceed their contracted capacity or extend beyond the original contract term in many cases, Snowflake believes that the amount of product revenue recognized in a given period is an important indicator of customer satisfaction and the value derived from the platform.</p>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/cbf138441130b474d888f2b8c3b6a14d\" tg-width=\"635\" tg-height=\"403\"><span>Data by YCharts</span></p>\n<p>Snowflake's Cost of Sales was $97.35 million. Snowflake's overall Gross Profit rose 98.6% to $131.57 million. Overall Gross Margins were 57.47% and on a non-GAAP basis, Snowflake's<b>product</b>gross margin was 72%, up from 66% in the comparable quarter last year<b>.</b></p>\n<p>Favorable cloud service agreements, growing scale across different regions and Snowflake's enterprise customer's success all contributed to steady product gross margin improvements. Management also indicated during the earnings call that in the long term, the product gross margin number could trend upward into the mid 70’s with the help of improved data storage economics. The recent changes to Snowflake’s storage representation of data have resulted in better data compression and reduced storage costs, which help the gross margin.</p>\n<blockquote>\n And the way it [Data Compression] improves margin is because storage becomes more efficient. Storage is a smaller component of the overall mix of the revenue, and compute is the real value of our software that drives more margin. And I will say we did roll this out in April, and you do see some of that coming into an impact on last quarter. But we did say at our IPO, if you remember, we thought we could get to the mid-70s [in product gross margins]. That might feel very good that we'll get to the mid-70s. It's going to take some time.\n</blockquote>\n<blockquote>\n Source: CFO Michael Scarpelli -Snowflake Q1 FY2022 Earnings Call\n</blockquote>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/529eb97bb77469e322f930569f856186\" tg-width=\"635\" tg-height=\"419\"><span>Data by YCharts</span></p>\n<p>Total Operating Expenditures were $337.16 Million. Snowflake recorded an Operating Loss of $205.60 Million. Product Operating margin was negative 16%, benefiting from revenue outperformance.</p>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/6dbb627575db2043508b5d9184639717\" tg-width=\"635\" tg-height=\"403\"><span>Data by YCharts</span></p>\n<p>Snowflake recorded a net loss of $203.22 Million in Q1. Net loss per share attributable to common stockholders, basic and diluted was -$0.70.</p>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/61498379509a7d72eac3dc247b9d077b\" tg-width=\"635\" tg-height=\"419\"><span>Data by YCharts</span></p>\n<p>Adjusted free cash flow margin was 10% and was positively impacted by strong collections from Q4 bookings and operating margin outperformance. Adjusted free cash flow excludes the $10 million impact of net cash paid or received on both employee and employer payroll tax-related items on employee stock option transactions. Adjusted free cash flow is defined as free cash flow plus (minus) net cash paid (received) on payroll tax-related items on employee stock transactions.</p>\n<p>Free cash flow is defined as net cash provided by (used in) operating activities reduced by purchases of property and equipment and capitalized internal-use software development costs. Free cash flow was $2.48 million during Q1.</p>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/c7cff66a7608df26acf8524dc7a00a4e\" tg-width=\"635\" tg-height=\"403\"><span>Data by YCharts</span></p>\n<p>It is important to remember that Snowflake does experience free cash flow seasonality. In fiscal '21, Q1 and Q4 were the strongest free cash flow quarters, while Q2 was the weakest and this pattern is expected to continue in future periods.</p>\n<p><b>Guidance</b></p>\n<p><b>Snowflake Q2 FY2022 Guidance</b></p>\n<p><img src=\"https://static.tigerbbs.com/b22e33efd1f082c777336f7bab0d3926\" tg-width=\"640\" tg-height=\"230\" referrerpolicy=\"no-referrer\"><b>FY 2022 Full Year Guidance</b></p>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/2cd6518f91e69cf59128aedc5da0d0de\" tg-width=\"640\" tg-height=\"262\"><span>Source:Snowflake First Quarter of Fiscal 2022 Press Release</span></p>\n<p><b>Balance Sheet</b></p>\n<p>The company’s balance sheet is healthy, with approximately $3.9 billion in cash, cash equivalents and short-term investments.</p>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/4c8679600d7e74072382f3e1712f9ef7\" tg-width=\"635\" tg-height=\"403\"><span>Data by YCharts</span></p>\n<p>Total Current Liabilities are $777.00 Million. Quick ratio was 5.27. A&nbsp;good quick ratio&nbsp;is any number greater than 1.0. Snowflake has aDebt To Equity ratioof 0.04.</p>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/f43b9ae97e48ef789152979917a02a5c\" tg-width=\"635\" tg-height=\"403\"><span>Data by YCharts</span></p>\n<p><b>Snowflake Investor Day</b></p>\n<p>Snowflake held an&nbsp;Investor Day on June 10th, in which the company revealed plans to reach $10 billion in product revenue by the end of 2028 (FY29), a big rise from fiscal 2021’s $554 million, with a long-term operating margin target of 10%.</p>\n<p>Investors, however, seem to have wanted even more growth&nbsp;as the stock opened around 4% lower the next day. Some analysts like Patrick Colville of Deutsche Bank think&nbsp;guidance is conservative&nbsp;because it implies that Snowflake would only capture about 12% of the $86B data warehouse market estimated for FY29.</p>\n<p>That all goes to show that there are already enormous growth expectations built into this stock because $10 billion in product revenue by the end of 2028 is a fairly ambitious goal.</p>\n<p>One other interesting part of the presentation was that the CFO raised the total addressable market for Snowflake to $90 billion, up from the $81 billion used for the roadshow for the IPO.</p>\n<p><b>Competitors</b></p>\n<p>In addition to database warehouses Druid and Dremio, Snowflake's strongest competitors appear to be the big data warehouse systems from the major cloud players like Amazon's Redshift, Microsoft Azure's Synapse, and Google's Big Query.</p>\n<p>Amazon, Microsoft and Google are all choosing to compete against Snowflake's new ideas in database warehouses by using the time honored tactic of trying to copy as many of Snowflake's features as possible..</p>\n<p>The advantage that Snowflake has over Amazon, Microsoft and Google in those companies trying to play copycat is that those database warehouses don't scale as well across different data sources (namely competing cloud storage services) and the major cloud players are not fully independent database warehouse providers, meaning that in the end, Amazon, Microsoft and Google are trying to lock customers in to as many of their bundled cloud services as possible. Snowflake doesn't care what cloud service a customer uses for services like storage, as Snowflake is truly neutral in the cloud wars, which is very desirable in a&nbsp;multi-cloud world.</p>\n<p>Of all the competitors, Google Big Query is currently the closest competitor to what Snowflake is doing as it also separates storage and compute. The biggest differences between Snowflake and BigQuery comes down to&nbsp;pricing and performance. Beth Kindig, in her article about Snowflake said this about Snowflake vs Big Query:</p>\n<blockquote>\n When it comes to deciding between BigQuery and Snowflake, it can come down to what you do with the database due to pricing structure differences. For instance, Snowflake is a better choice for concurrent users and business intelligence. It’s also a great choice for data-as-a-service, where you might give client access to your data in the form of analytics. BigQuery is perhaps a better choice for ad hoc reporting, where you have occasional complex reports on a quarterly basis or recommendation models and machine learning that require high idle time. Again, these examples are mainly due to pricing structure.\n</blockquote>\n<blockquote>\n Source: Beth Kindig -Forbes article\n</blockquote>\n<p><b>Risks</b></p>\n<p>Snowflake has significant valuation risk, even with the pullback in the stock price from its highs in December. For Snowflake to expand its valuation any further, it is going to require the company to continue posting outstanding growth numbers.</p>\n<p>Secondarily, Snowflake currently only offers their platform on the public clouds provided by AWS, Azure, and GCP, which are also some of the company's primary competitors. Currently, a substantial majority of Snowflake's business is run on the AWS public cloud.</p>\n<p>So, while Snowflake has some competitive advantages over a cloud giant like AWS, there is a risk that AWS or one of the other cloud giants could use the control of their public cloud to embed innovations for competing offerings to Snowflake or bundle competing products together with other cloud services or leverage their public cloud customer relationships to exclude Snowflake from opportunities. The reason why this risk might not play out in the cloud giants favor is that it appears companies are&nbsp;favoring multi-cloud approaches&nbsp;and have little desire in being locked into only one cloud by a bundled product. That is where Snowflake's Switzerland neutral status in the cloud wars provides some protection but not total protection from this risk.</p>\n<p>On another note, though, because the three major cloud players also provides much of the infrastructure for Snowflake's business model, in the future it is completely possible that Snowflake could face the risk of unfavorable pricing for the use of the underlying cloud infrastructure, which could hurt Snowflake's margins.</p>\n<p>Snowflake could also undergo pricing pressure on the services offered to customers, as a company like Amazon could do something like offer discount pricing for competing services to customers and that scenario could also threaten Snowflake's margins over the longer term. Amazon has been known to use that strategy in other areas of their business in the past.</p>\n<p>Another risk is regulatory. Snowflake must comply with evolving privacy and other data related laws. The requirements for following those laws could be expensive and force the company to make adverse changes to the business, with failure to comply with such laws not being much of an option. Examples of these types of laws are General Data Protection Regulation (GDPR) and California Consumer Privacy Act (CCPA).</p>\n<p><b>Valuation</b></p>\n<table>\n <tbody>\n  <tr>\n   <td>Company</td>\n   <td>Mkt Cap</td>\n   <td><p>Price/Sales</p></td>\n   <td>Free Cash Flow Margin %</td>\n   <td>EV/Revenues (FWD)</td>\n   <td>Revenue Growth (Y/Y) %</td>\n   <td>Gross Margins %</td>\n   <td>Revenues</td>\n  </tr>\n  <tr>\n   <td><p>Salesforce</p><p>(CRM)</p></td>\n   <td>$222.53B</td>\n   <td>10.30</td>\n   <td>51.27%</td>\n   <td>8.1</td>\n   <td>22.57%</td>\n   <td>73.92%</td>\n   <td>5.96B</td>\n  </tr>\n  <tr>\n   <td>Snowflake (SNOW)</td>\n   <td>$71.25B</td>\n   <td>87.93</td>\n   <td>1.09%</td>\n   <td>60.4</td>\n   <td>110.4%</td>\n   <td>57.47%</td>\n   <td>228.9M</td>\n  </tr>\n  <tr>\n   <td>Okta (OKTA)</td>\n   <td>$34.63B</td>\n   <td>32.59</td>\n   <td>20.99%</td>\n   <td>27.6</td>\n   <td>37.27%</td>\n   <td>73.66%</td>\n   <td>$251M</td>\n  </tr>\n  <tr>\n   <td>MongoDB (MDB)</td>\n   <td>$20.76B</td>\n   <td>32.36</td>\n   <td>5.28%</td>\n   <td>26.8</td>\n   <td>39.38%</td>\n   <td>69.98%</td>\n   <td>$181.7M</td>\n  </tr>\n  <tr>\n   <td>Teradata (TDC)</td>\n   <td>$5.23B</td>\n   <td>2.76</td>\n   <td>21.38%</td>\n   <td>2.7</td>\n   <td>13.13%</td>\n   <td>62.53%</td>\n   <td>491M</td>\n  </tr>\n </tbody>\n</table>\n<p>Two things are very obvious about the above company comparisons. One is that Snowflake, even with substantial pullback from its all time highs in December is very highly valued on a Price to Sales basis. Second, is that Snowflake was still growing triple digits in the latest quarter, which is pretty amazing.</p>\n<p>On the other hand, investors were not impressed by the guidance given during earnings, nor were they impressed by Snowflake's long term projections given during their recent Investor Day. One thing is for sure, for investors to bid Snowflake's stock up further, the company will have to keep producingmind boggling growth numbers.</p>\n<p>The following is based on 26 Wall Street analysts offering 12-month price targets for Snowflake in the last 3 months. The average price target is $292.12 with a high forecast of $515.00 and a low forecast of $240.60. The average price target represents a 21.41% from the last price of $240.60.</p>\n<p><img src=\"https://static.tigerbbs.com/007fe75a78c7835e52d8edf8bc7f6bed\" tg-width=\"499\" tg-height=\"405\" referrerpolicy=\"no-referrer\"></p>\n<p><b>Conclusion</b></p>\n<p>Snowflake is a stock that has very high expectations built into the stock price. The latest earnings and guidance, plus the latest investor day were not enough to get investors excited about pushing the value of the stock much further than it is now.</p>\n<p>However, I think that with a company like Snowflake, one has to take a much longer view than simply looking at one quarter's metrics. I believe it is appropriate to take at least a five year view with this company to see that the future is likely very bright. I believe Snowflake is being very conservative with their long term projections given during Investor Day and if that should prove to be the case, we all might look back several years from now and see with the benefit of hindsight that the stock was actually undervalued.</p>\n<p>I believe that the idea of a Data Cloud and a Data Marketplace are very, very early in the product life cycle and that Snowflake is at the beginning of a strong run of customer and revenue growth over the next several years. Snowflake is a buy but only for&nbsp;<b>veryaggressive investors</b>&nbsp;because there is already a lot of growth embedded in Snowflake's valuation and if the company fails to produce that expected growth, then the stock could drop rapidly.</p>","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Snowflake: A Very Aggressive Bet On The Future Of The Data Cloud</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; 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}\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nSnowflake: A Very Aggressive Bet On The Future Of The Data Cloud\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-06-17 11:32 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4435130-snowflake-stock-snow-very-aggressive-bet-on-future-of-data-cloud><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Summary\n\nSnowflake has only recently started to recover after the long decline from an all time high of $429 that occurred within the December 8 market session.\nSnowflake created the concept of the ...</p>\n\n<a href=\"https://seekingalpha.com/article/4435130-snowflake-stock-snow-very-aggressive-bet-on-future-of-data-cloud\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"SNOW":"Snowflake"},"source_url":"https://seekingalpha.com/article/4435130-snowflake-stock-snow-very-aggressive-bet-on-future-of-data-cloud","is_english":true,"share_image_url":"https://static.laohu8.com/e9f99090a1c2ed51c021029395664489","article_id":"1151875977","content_text":"Summary\n\nSnowflake has only recently started to recover after the long decline from an all time high of $429 that occurred within the December 8 market session.\nSnowflake created the concept of the Data Cloud which allows organizations to unify and connect to a single copy of all of their data with ease.\nEvery Snowflake account is capable of sharing data in the Snowflake Data Marketplace, which is a concept that is very early on in its lifecycle.\nDuring Investor Day on June 10, Snowflake revealed plans to reach $10 billion in product revenue by the end of 2028 (FY29) with a long-term operating margin target of 10%.\nSnowflake is a buy but only for very aggressive investors as the valuation assumes a lot of growth.\n\nmetamorworks/iStock via Getty Images\nLast September, Snowflake (NASDAQ:SNOW) began life as a public company after the largest software IPO in history. Snowflake was at the time of its IPO, a unprofitable software company, which is why it was interesting that Warren Buffett's Berkshire Hathaway (NYSE:BRK.A) , which normally eschews investing in software or cloud companies actually wound up investing $735 million or 6.1 million Snowflake shares at the $120 IPO price.\nOn September 18, 2020, CEO Frank Slootman,in an interview, disclosed that Berkshire's insurance unit has been using Snowflake's services for quite awhile and that might be part of the reason that Berkshire was comfortable enough to invest in Snowflake's stock. The Slootman interview also disclosed that Snowflake's interactions with Berkshire have been through Todd Combs, the CEO of Berkshire holding GEICO. Since Todd Combs also serves as a Berkshire investment manager, he is probably the one directly responsible for the Snowflake investment and not Buffett.\nSalesforce Ventures (NYSE:CRM) also decided to make an investment of more than $500 million in the company at the IPO, as a play on digital transformation and long term cloud adoption. Snowflake's stock soared in the months following its IPO, partially due to investors being interested in the fastest growing of all the fast growing digital transformation plays and partially due to Snowflake receiving the seal of approval from both Berkshire and Salesforce.\nSnowflake finally ended up reached an all time high of $429.00 within the December 8th market session, at which point Snowflake was selling for 245x Sales and was already being called \"The Most Highly Valued Large Cap Company in History\".\nEventually, due to fears of rising interest rates and inflation, investors began losing enthusiasm for stocks selling at high valuations and nervous investors have since sold Snowflake's stock down to the point where it had reached all time lows of $184.71 per share on May 13. Since, then the stock has risen slightly over 30% and the question now becomes for investors, \"Is Snowflake a buy at current prices, even though, the company still sells for around 85X sales?\"\nData by YCharts\nThis article will go through some of the reasons why many investors are still very infatuated with Snowflake and also go through recent earnings, as well as explain why I consider Snowflake a buy for very aggressive investors.\nSnowflake CEO Frank Slootman\nSnowflake was founded in July 2012 by two former Oracle (NYSE:ORCL) engineers Benoit Dageville and Thierry Cruanes, along with Marcin Żukowski, co-founder of the Dutch start-up Vectorwise. The first CEO of Snowflake was Mike Speiser, a venture capitalist at Sutter Hill Ventures. In June 2014, Snowflake appointed former Microsoft (NASDAQ:MSFT) executive Bob Muglia as CEO, as the company emerged from stealth mode.\nIn May 2019, the company decided to change the leadership team again to Frank Slootman, the retired former CEO of ServiceNow (NASDAQ:NOW), who joined Snowflake as its CEO and Michael Scarpelli, the former CFO of ServiceNow who joined Snowflake as CFO.\nIn an article Beth Kindig wrote for Forbes near the date of the IPO, she indicated that the change of CEOs from Bob Muglia to Frank Slootman likely occurred because of pressure from private investors that wanted leadership from someone that had a proven track record of showing that they could grow an enterprise tech company very quickly and who also could make a successful profitable exit for investors in an IPO. Investors got that type of CEO in Frank Slootman, who has a type of \"Rockstar\" status among CEOs.\n\n “He’s one of the most impressive, most accomplished, most respected CEOs in enterprise tech,” said Asheem Chandna, a software investor at Greylock Partners, which invested in the first two companies Slootman took public, Data Domain (later acquired by EMC and now part ofDell) and ServiceNow. “He’s a take-no-prisoners leader. He can point at a hill and inspire the entire team to follow him to take the hill.”\n\n\n Source:CNBC\n\nFrank Slootman already had a rich history that involved turning around a company called Data Domain, which was detailed in his book “TAPE SUCKS: Inside Data Domain, A Silicon Valley Growth Story”. When Slootman first took over Data Domain in 2003, the company had no customers, no revenues, and was a few months away from bankruptcy. In six years, Slootman grew Data Domain to the point where it was selling more than all of its competitors combined. Slootman then successfully sold the company to EMC (NYSE:DELL) in 2009 for $2.1 billion and the Data Domain product line has been Dell EMC's flagship platform for backup, archive and disaster recovery ever since.\nTwo years later, Slootman took over the CEO role of ServiceNow between 2011 to 2017. Part of Slootman's accomplishments at ServiceNow was guiding the company to a 2012 IPO.\nFor individuals that think that the role of the CEO is essential for a company's success, Snowflake has perhaps one of the best CEOs in the tech sector and the presence of CEO Frank Slootman alone, should be reason enough to consider Snowflake as an investment.\nThe Data Cloud\nSnowflake is a cloud native company that offers unlimited storage and compute in the cloud in a manner designed to be flexible and convenient for companies. Snowflake was built with the purpose of replacing legacy data warehouses. The Snowflake platform is essentially a complete redesign and reimagining of data warehouse architecture and technology\nSource:Snowflake Presentation titled \"A Detailed View Inside Snowflake\"\n\nThe problem with how many companies handle data today, is that they have what is known as a siloed data problem. Siloed data simply means that the same information is often stored in different databases, leading to inconsistencies between data located in different parts of the company. Siloed data also often makes it difficult to join data to gain new insights or have the ability to act quickly on any new data.\nSnowflake gives company's the ability to join all of their data together and eliminate discrepancies between data from different sources, and reduce data latency. With joined data and reduced data latency, comes the ability for companies to use new incoming data quickly and this is a huge driver for Snowflake's business. When companies become Snowflake customers, they often find that what used to take hours or days to go through data now only takes minutes.\nWith Snowflake's innovations, data is now moving from an era of simply informing people to driving operations right as the information signals come in with very little latency. No more will important business decisions be done with only anecdotal observation. Business decisions will increasingly be data driven. That is what digital transformation actually means for a business.\nEvery business, in order to survive will eventually have to digitally transform and Snowflake is becoming an essential building block for digital transformation. The Data Cloudis the building block of digital transformation and Snowflake is evolving to become the largest independent Data Cloud.\nData Sharing\nAnyone that has a Snowflake account is capable of sharing data. Data sharing is about to become an additional important business for Snowflake. Snowflake has already built a Data Marketplace and is on the verge of starting to really monetize it. Just recently,Snowflake announced that it was accelerating data collaboration with more than 500 Listings in the Snowflake Data Marketplace.\nBusiness will be able to search for what data is being offered on the Data Marketplace with some of the data offers being for free and some data offers for pay. The Snowflake management team expects that in the future, data networking will become frictionless and that today, we are on the beginning edges of a true data exchange network application.\nSnowflake expects data sharing to become a big part of their business moving forward and eventually a big part of any future moat because data sharing can translate into powerful network effects, in that the more businesses use the data sharing through Snowflake's market, the more valuable the Snowflake Data Market will become.\nSnowflake Architecture\nSource:Snowflake Presentationtitled \"A Detailed View Inside Snowflake\"\nSource:Snowflake User Guide\nSnowflake’s novel design consists of three components:\n\nStorage: the persistent storage layer for data stored on Snowflake\nCompute: a collection of independent compute resources that execute data processing tasks required for queries. Snowflake also describes this compute as virtual warehouses.\nServices: a collection of system services that handle infrastructure, security, metadata, and optimization across the entire Snowflake system\n\nSnowflake has a decoupled architecture that allows for compute and storage to scale separately. The database storage can be provided from any cloud provider that the customer chooses.\nQuery processing or compute takes place in what Snowflake calls virtual warehouses. To simplify things for people that are not data experts, a query is a request for data or information from a database table or combination of tables. Query processing is simply using the compute resources to perform a search for data.\nSnowflake uses massively parallel processing or MPP, in the compute/virtual warehouse setup to process queries.Massively parallel processing is a form of collaborative processing of the same program by two or more processors or in this case virtual warehouses. The advantage of using MPP in the virtual warehouse setup is that the virtual warehouses can access the storage layer independently so as not to compete for compute power.\nSnowflake's virtual warehouses have the ability to access any of the databases in the database storage layer to which they have been granted access, and these virtual warehouses can be created, resized and deleted dynamically as resource needs change. When virtual warehouses execute queries, they transparently and automatically cache data from the database storage layer. Snowflake has the advantage of being able to dynamically bring together the storage, compute and services layers, delivering exactly the resources needed exactly when they are needed, meaning that under a multitude of different usage scenarios, Snowflake is able to dynamically create the right balance of IO, memory, CPU, etc.\nTraditional data warehouse, on the other hand, will often tightly couple the storage, compute, and database services. The disadvantage of doing this is there are performance limitations as the number of workloads and users increase, meaning such a configuration is not very scalable.\nSnowflake's competitors, such as Amazon's (NASDAQ:AMZN) Redshift, for instance, can be disadvantaged when having the compute and storage so tightly coupled, because more often than not more time must be spent manually reconfiguring things, which is a disadvantage.\nOne of Snowflake’s unique value propositions is the company’s relatively flexible business model compared to its peers. Snowflake touts this ability on its website:\n\n “Whether you’re a business or technology professional, get the performance, flexibility, and near-infinite scalability to easily load, integrate, analyze and securely share your data.”\n\n\n Source:Snowflake\n\nSnowflake's virtual data warehouse setup where workloads share the same data but can run independently, makes it easier for customers to run smaller workloads. Snowflake management calls this the ability to scale down. When a company joins Snowflake, it does not require a big upfront commitment like it might with other companies. Snowflake allows customers to fully customize their services with an ability to scale down to whatever level is needed. Companies only have to pay for the services they need, instead of having to pay for big bulked up packages containing unnecessary services.\nSnowflake’s competitors, on the other hand, often combine compute, storage and services, then require customers to size and pay based on the largest workload, which can make some data warehouses completely unaffordable or inefficient for some companies.\nSnowflake's documentation claims that the Snowflake data platform is not built on any existing database technology or “big data” software platforms such as Hadoop. Instead, Snowflake combines a completely new SQL query engine with an innovative database architecture natively designed for the cloud. This database and query engine helps Snowflake perform faster queries with fewer errors and costs over competitors.\nI don't want this explanation to get too technical for those not familiar with databases, storage or how the cloud works, so for those that want a more technical explanation of Snowflake's architecture, they can read Snowflake's documentation. or read a Snowflake Presentation titled \"A Detailed View Inside Snowflake\".\nC3 AI and Snowflake Partner\nBefore going through earnings, I wanted to highlight some very recent news of a new collaboration between C3.ai (NYSE:AI) and Snowflake. C3 AI is an enterprise AI software provider that provides a suite that provides comprehensive services to build enterprise-scale AI applications more efficiently and cost-effectively than alternative approaches.\nThis partnership will give companies that currently use Snowflake access to the C3 AI® Suite and pre-built C3 AI applications that include a range of industries and enterprise AI use cases, including AI-based CRM, predictive maintenance, supply network optimization, and fraud detection.\n\n C3.ai's chief product officer, Houman Behzadi, said the partnership \"will create significant time and operational efficiencies for Snowflake's customers and solidify Snowflake as the operational data platform of choice for enterprise AI applications.\"\n\n\n Source: C3.ai's chief product officer, Houman Behzadi -ZDNet\n\nSnowflake Q1 FY 2022 Earnings\nSnowflake's Q1 FY 2022 remaining performance obligations or RPO was $1.4 billion, representing 206% year-over-year growth. The RPO results reflected more multimillion-dollar relationships with particular strength in the telecom and technology sectors. Of the $1.4 billion in RPO, Snowflake expects approximately 54% to be recognized as revenue in the next 12 months.\nSnowflake defines RPO in its earnings press release as the amount of contracted future revenue that has not yet been recognized, including both deferred revenue and non-cancelable contracted amounts that will be invoiced and recognized as revenue in future periods.\nRPO excludes performance obligations from on-demand arrangements and certain time and materials contracts that are billed in arrears.RPO is not necessarily indicative of future product revenue growth because it does not account for the timing of customers’ consumption or their consumption of more than their contracted capacity.\nAt the end of Q1, Snowflake had 4,532 total customers. The total number reflects the addition of 393 net new customers in Q1, including three seven-figure new customers. Several of these customer wins might be recognizable names to investors that include Datadog (NASDAQ:DDOG) and Walgreens Boots Alliance (NASDAQ:WBA) and Equifax (NYSE:EFX).\nSnowflake management has stated that they have a strong interest in penetrating more of the largest enterprises globally because they provide the largest opportunity for account expansion. On that note, Snowflake now has 104 customers with trailing 12-month product revenue greater than $1 million, up from 77 last quarter. CFO Michael Scarpelli had some interesting things to say about Snowflake expanding with large customers that shows why the company's products are gaining fans among large enterprises\n\n When we expand within our largest customers, we typically replace more than one solution. In many cases, we replace on-premise and first-generation cloud solutions, and we address new workloads.\n Snowflake creates use cases that were previously impossible. This is what fuels our 168% net revenue retention rate, and we remain confident that our net revenue retention will stay above 160% for the fiscal year.\n\n\n Source: CFO Michael Scarpelli -Snowflake Q1 FY2022 Earnings Call\n\nSnowflake's net revenue retention rate of 168% is probably the best number in the SaaS world. Snowflake calculates their net retention number by first specifying a measurement period consisting of the trailing two years from the current period end. Next, Snowflake defines the measurement cohort as the population of customers under capacity contracts that used the platform at any point in the first month of the first year of the measurement period. The net revenue retention is then defined as the quotient obtained by dividing the product revenue from the cohort in the second year of the measurement period by the product revenue from this cohort in the first year of the measurement period.\nSo a net retention rate of 168% means that the customer cohort that spent $100 on average in the first year of the measurement period on the Snowflake platform is spending on average $168 in the second year of the measurement period.. Any customer in the cohort that did not use the platform in the second year remains in the calculation and simply contributes zero product revenue in the second year.\nSnowflake grew product and total revenues grew 110% year over year to $229 million. Product revenue grew to $214 million, reflecting strength in Snowflake consumption. Product revenue is a key metric for Snowflake because revenue is recognized based on platform consumption, which is inherently variable at the customers discretion, and not based on the amount and duration of contract terms. Professional services and other revenue was 15 million.\nData by YCharts\nAs explained in Snowflake's Q1 FY2022 earnings release, product revenue primarily includes compute, storage, and data transfer resources, which are consumed by customers on Snowflake's platform as a single, integrated offering. Snowflake customers have the ability to consume more than their contracted capacity during the contract term and may have the ability to roll over unused capacity to future periods, generally on the purchase of additional capacity at renewal.\nSnowflake's consumption-based business model distinguishes the company from subscription-based SaaS companies that generally recognize revenue ratably over the contract term and may not permit rollover of services. Because customers have flexibility in the timing of their consumption, which can exceed their contracted capacity or extend beyond the original contract term in many cases, Snowflake believes that the amount of product revenue recognized in a given period is an important indicator of customer satisfaction and the value derived from the platform.\nData by YCharts\nSnowflake's Cost of Sales was $97.35 million. Snowflake's overall Gross Profit rose 98.6% to $131.57 million. Overall Gross Margins were 57.47% and on a non-GAAP basis, Snowflake'sproductgross margin was 72%, up from 66% in the comparable quarter last year.\nFavorable cloud service agreements, growing scale across different regions and Snowflake's enterprise customer's success all contributed to steady product gross margin improvements. Management also indicated during the earnings call that in the long term, the product gross margin number could trend upward into the mid 70’s with the help of improved data storage economics. The recent changes to Snowflake’s storage representation of data have resulted in better data compression and reduced storage costs, which help the gross margin.\n\n And the way it [Data Compression] improves margin is because storage becomes more efficient. Storage is a smaller component of the overall mix of the revenue, and compute is the real value of our software that drives more margin. And I will say we did roll this out in April, and you do see some of that coming into an impact on last quarter. But we did say at our IPO, if you remember, we thought we could get to the mid-70s [in product gross margins]. That might feel very good that we'll get to the mid-70s. It's going to take some time.\n\n\n Source: CFO Michael Scarpelli -Snowflake Q1 FY2022 Earnings Call\n\nData by YCharts\nTotal Operating Expenditures were $337.16 Million. Snowflake recorded an Operating Loss of $205.60 Million. Product Operating margin was negative 16%, benefiting from revenue outperformance.\nData by YCharts\nSnowflake recorded a net loss of $203.22 Million in Q1. Net loss per share attributable to common stockholders, basic and diluted was -$0.70.\nData by YCharts\nAdjusted free cash flow margin was 10% and was positively impacted by strong collections from Q4 bookings and operating margin outperformance. Adjusted free cash flow excludes the $10 million impact of net cash paid or received on both employee and employer payroll tax-related items on employee stock option transactions. Adjusted free cash flow is defined as free cash flow plus (minus) net cash paid (received) on payroll tax-related items on employee stock transactions.\nFree cash flow is defined as net cash provided by (used in) operating activities reduced by purchases of property and equipment and capitalized internal-use software development costs. Free cash flow was $2.48 million during Q1.\nData by YCharts\nIt is important to remember that Snowflake does experience free cash flow seasonality. In fiscal '21, Q1 and Q4 were the strongest free cash flow quarters, while Q2 was the weakest and this pattern is expected to continue in future periods.\nGuidance\nSnowflake Q2 FY2022 Guidance\nFY 2022 Full Year Guidance\nSource:Snowflake First Quarter of Fiscal 2022 Press Release\nBalance Sheet\nThe company’s balance sheet is healthy, with approximately $3.9 billion in cash, cash equivalents and short-term investments.\nData by YCharts\nTotal Current Liabilities are $777.00 Million. Quick ratio was 5.27. A good quick ratio is any number greater than 1.0. Snowflake has aDebt To Equity ratioof 0.04.\nData by YCharts\nSnowflake Investor Day\nSnowflake held an Investor Day on June 10th, in which the company revealed plans to reach $10 billion in product revenue by the end of 2028 (FY29), a big rise from fiscal 2021’s $554 million, with a long-term operating margin target of 10%.\nInvestors, however, seem to have wanted even more growth as the stock opened around 4% lower the next day. Some analysts like Patrick Colville of Deutsche Bank think guidance is conservative because it implies that Snowflake would only capture about 12% of the $86B data warehouse market estimated for FY29.\nThat all goes to show that there are already enormous growth expectations built into this stock because $10 billion in product revenue by the end of 2028 is a fairly ambitious goal.\nOne other interesting part of the presentation was that the CFO raised the total addressable market for Snowflake to $90 billion, up from the $81 billion used for the roadshow for the IPO.\nCompetitors\nIn addition to database warehouses Druid and Dremio, Snowflake's strongest competitors appear to be the big data warehouse systems from the major cloud players like Amazon's Redshift, Microsoft Azure's Synapse, and Google's Big Query.\nAmazon, Microsoft and Google are all choosing to compete against Snowflake's new ideas in database warehouses by using the time honored tactic of trying to copy as many of Snowflake's features as possible..\nThe advantage that Snowflake has over Amazon, Microsoft and Google in those companies trying to play copycat is that those database warehouses don't scale as well across different data sources (namely competing cloud storage services) and the major cloud players are not fully independent database warehouse providers, meaning that in the end, Amazon, Microsoft and Google are trying to lock customers in to as many of their bundled cloud services as possible. Snowflake doesn't care what cloud service a customer uses for services like storage, as Snowflake is truly neutral in the cloud wars, which is very desirable in a multi-cloud world.\nOf all the competitors, Google Big Query is currently the closest competitor to what Snowflake is doing as it also separates storage and compute. The biggest differences between Snowflake and BigQuery comes down to pricing and performance. Beth Kindig, in her article about Snowflake said this about Snowflake vs Big Query:\n\n When it comes to deciding between BigQuery and Snowflake, it can come down to what you do with the database due to pricing structure differences. For instance, Snowflake is a better choice for concurrent users and business intelligence. It’s also a great choice for data-as-a-service, where you might give client access to your data in the form of analytics. BigQuery is perhaps a better choice for ad hoc reporting, where you have occasional complex reports on a quarterly basis or recommendation models and machine learning that require high idle time. Again, these examples are mainly due to pricing structure.\n\n\n Source: Beth Kindig -Forbes article\n\nRisks\nSnowflake has significant valuation risk, even with the pullback in the stock price from its highs in December. For Snowflake to expand its valuation any further, it is going to require the company to continue posting outstanding growth numbers.\nSecondarily, Snowflake currently only offers their platform on the public clouds provided by AWS, Azure, and GCP, which are also some of the company's primary competitors. Currently, a substantial majority of Snowflake's business is run on the AWS public cloud.\nSo, while Snowflake has some competitive advantages over a cloud giant like AWS, there is a risk that AWS or one of the other cloud giants could use the control of their public cloud to embed innovations for competing offerings to Snowflake or bundle competing products together with other cloud services or leverage their public cloud customer relationships to exclude Snowflake from opportunities. The reason why this risk might not play out in the cloud giants favor is that it appears companies are favoring multi-cloud approaches and have little desire in being locked into only one cloud by a bundled product. That is where Snowflake's Switzerland neutral status in the cloud wars provides some protection but not total protection from this risk.\nOn another note, though, because the three major cloud players also provides much of the infrastructure for Snowflake's business model, in the future it is completely possible that Snowflake could face the risk of unfavorable pricing for the use of the underlying cloud infrastructure, which could hurt Snowflake's margins.\nSnowflake could also undergo pricing pressure on the services offered to customers, as a company like Amazon could do something like offer discount pricing for competing services to customers and that scenario could also threaten Snowflake's margins over the longer term. Amazon has been known to use that strategy in other areas of their business in the past.\nAnother risk is regulatory. Snowflake must comply with evolving privacy and other data related laws. The requirements for following those laws could be expensive and force the company to make adverse changes to the business, with failure to comply with such laws not being much of an option. Examples of these types of laws are General Data Protection Regulation (GDPR) and California Consumer Privacy Act (CCPA).\nValuation\n\n\n\nCompany\nMkt Cap\nPrice/Sales\nFree Cash Flow Margin %\nEV/Revenues (FWD)\nRevenue Growth (Y/Y) %\nGross Margins %\nRevenues\n\n\nSalesforce(CRM)\n$222.53B\n10.30\n51.27%\n8.1\n22.57%\n73.92%\n5.96B\n\n\nSnowflake (SNOW)\n$71.25B\n87.93\n1.09%\n60.4\n110.4%\n57.47%\n228.9M\n\n\nOkta (OKTA)\n$34.63B\n32.59\n20.99%\n27.6\n37.27%\n73.66%\n$251M\n\n\nMongoDB (MDB)\n$20.76B\n32.36\n5.28%\n26.8\n39.38%\n69.98%\n$181.7M\n\n\nTeradata (TDC)\n$5.23B\n2.76\n21.38%\n2.7\n13.13%\n62.53%\n491M\n\n\n\nTwo things are very obvious about the above company comparisons. One is that Snowflake, even with substantial pullback from its all time highs in December is very highly valued on a Price to Sales basis. Second, is that Snowflake was still growing triple digits in the latest quarter, which is pretty amazing.\nOn the other hand, investors were not impressed by the guidance given during earnings, nor were they impressed by Snowflake's long term projections given during their recent Investor Day. One thing is for sure, for investors to bid Snowflake's stock up further, the company will have to keep producingmind boggling growth numbers.\nThe following is based on 26 Wall Street analysts offering 12-month price targets for Snowflake in the last 3 months. The average price target is $292.12 with a high forecast of $515.00 and a low forecast of $240.60. The average price target represents a 21.41% from the last price of $240.60.\n\nConclusion\nSnowflake is a stock that has very high expectations built into the stock price. The latest earnings and guidance, plus the latest investor day were not enough to get investors excited about pushing the value of the stock much further than it is now.\nHowever, I think that with a company like Snowflake, one has to take a much longer view than simply looking at one quarter's metrics. I believe it is appropriate to take at least a five year view with this company to see that the future is likely very bright. I believe Snowflake is being very conservative with their long term projections given during Investor Day and if that should prove to be the case, we all might look back several years from now and see with the benefit of hindsight that the stock was actually undervalued.\nI believe that the idea of a Data Cloud and a Data Marketplace are very, very early in the product life cycle and that Snowflake is at the beginning of a strong run of customer and revenue growth over the next several years. Snowflake is a buy but only for veryaggressive investors because there is already a lot of growth embedded in Snowflake's valuation and if the company fails to produce that expected growth, then the stock could drop rapidly.","news_type":1},"isVote":1,"tweetType":1,"viewCount":68,"authorTweetTopStatus":1,"verified":2,"comments":[],"imageCount":0,"langContent":"EN","totalScore":0},{"id":161341344,"gmtCreate":1623907078588,"gmtModify":1703823226059,"author":{"id":"3587000590618765","authorId":"3587000590618765","name":"Dragonsss","avatar":"https://static.laohu8.com/default-avatar.jpg","crmLevel":1,"crmLevelSwitch":0,"followedFlag":false,"idStr":"3587000590618765","authorIdStr":"3587000590618765"},"themes":[],"htmlText":"Uesxxdd","listText":"Uesxxdd","text":"Uesxxdd","images":[{"img":"https://static.tigerbbs.com/95276cf772f41ac5ef470bf541c5b015","width":"750","height":"1260"}],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/161341344","isVote":1,"tweetType":1,"viewCount":55,"authorTweetTopStatus":1,"verified":2,"comments":[],"imageCount":1,"langContent":"EN","totalScore":0}],"defaultTab":"followers","isTTM":true}