Snowflake Accelerates In Revenue While Growth Stocks Sell Off

Chart: Snowflake Inc Price % Change

Snowflake’s Rare Acceleration in Net Retention

There are a few key metrics that Snowflake discloses that help investors better understand the demand for its products and the cadence of its growth going forward. One of the key metrics is its net retention ratio (NRR), which increased YoY from 162% to 173%, the highest level since it went public and a notable (rare) acceleration.

Chart: Dollar-Based Net Revenue Retention Rate
Chart: Snowflake Total Customers
Chart: Revenue by Geography
Chart: Adjusted Free Cash Flow As % of Revenue

Update on Snowflake’s Platform:

Snowflake’s decoupled architecture allows for compute and storage to scale separately with the storage provided from any cloud provider the customer chooses. By processing queries using massively parallel processing (MPP), where each node in the cluster stores a portion of the data set locally, the virtual warehouses can access the storage layer independently so as not to compete for compute power. With the competitors, such as Redshift, where compute and storage are coupled, more time is spent reconfiguring the cluster.

Data Sharing and Data Marketplaces

Snowflake allows businesses to share their data with other external businesses on the platform. Data Marketplace allows free or monetized data sets to be exchanged. This has helped Snowflake break into new industries with use cases that other data lakes and competitors do not currently offer.

Developers Building Apps with Snowpark

Snowpark offers the ability to migrate business logic with popular programming languages Python, Scala/Java Virtual Machine or Java. The library and DataFrame API allow querying and processing data without having to move data to where the application code runs. This extends programming functionality for ML model training and allows data processing to run natively in the data cloud.

Risks

The company’s revenue growth has been exceptional. However, the company is undergoing losses. There is no clarity as to when the company will be profitable on a GAAP basis. In last year’s Investor Day presentation, the company has laid its roadmap to reach $10 billion in annual product revenue in the FY 2029 and adjusted operating income margin of 10%. So, it suggests that the competition is very high for its bottom line to improve significantly.

Valuation

Considering the company’s strong metrics discussed further above, it makes sense that Snowflake trades at a premium multiple compared to other high growth companies. At time of writing, it’s 1-year fwd P/S multiple is 46x and Snowflake trades at a 29x 2-year forward multiple.

Table
Chart shows Snowflake EPS Estimates for 2 Fiscal Years Ahead

Conclusion

Snowflake separates compute and storage which allows companies to store large amounts of data while running complex queries at high performance. The company also drives down costs for customers newly onboarded due to its pricing model where you pay for only what is used. Snowpark now allows data processing to occur natively on the data cloud instead of external Spark clusters and is opening up complex data pipelines with popular programming languages, such as Python.

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Beth Kindig

Beth Kindig

1.4K Followers

CEO and Lead Tech Analyst for the I/O Fund with cumulative audited results of 141%, beating Ark and other leading active tech funds over four audit periods in 2