There Has Never Been Another Company Like Snowflake
SNOW grew to $1 billion in revenue faster than any enterprise software company in history..
Snowflake grew to over $1 billion in annualized revenue faster than any enterprise software company in history and CEO Frank Slootman thinks they’ll be the fastest to $2 billion as well.
Disclosure: I am long SNOW in the $10k to $1 million portfolio. Here is a look at the position sizes for your reference. I do full portfolio and valuation reviews once a month so be sure to subscribe if you’d enjoy those.
In FY 2022, Snowflake earned $1.14B in revenue and $150 million in adjusted free cash flow with revenue growth of 106%. Shares are currently trading at a P/S of 25.
To give a comparison, Salesforce (CRM) reached $1.3B in annual revenue in 2010. At that time, it earned $220M in free cash flow, was growing revenue 21% YoY, and traded at a P/S multiple of 7.2. Since then, Salesforce has grown revenues by 2,000% to $28B today and shares have returned almost 800% in 12 years.
So clearly, Snowflake is super expensive….
Yes, but I think its growth rate, proven executive team, and market opportunity make it a compelling opportunity as a long-term investment. SNOW is growing much faster than Salesforce was at its scale. Here’s how the P/S multiple looks in FY 23 and FY 24.
Annual Revenue Estimate and Forward P/S (Seeking Alpha)
Fair Value According to Morningstar
I’m happy to continue owning and accumulating shares at today’s prices because I think Snowflake can grow revenue >30%/year into FY29 and beyond. I have no idea how much the stock might drop over the next 12 months but I think over 5+ years the revenue, EPS, and FCF growth will lift the valuation higher.
Today we’re talking about Snowflake’s current fundamentals, valuation, and my takeaways from the Summit. The bottom line is that management seems very confident.
I believe the long-term thesis is fully-intact — and improving as they operate from a position of strength and aggressiveness in the current macro environment.
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Important Updates From Management
First, management provided this slide showing what they believe their opportunity is for the Cloud Data Platform. Just a reminder.. SNOW had just over $1B in annual revenue in FY 2022.
Snowflake is tackling its market opportunity by targeting the largest 2000 organizations in the world. They currently have 506 of the Global 2000 signed on as customers which seems relatively penetrated.
However, 57% of their $1M revenue customers are enterprise customers and only 45% are Global 2000 customers.
Put another way, the average spend from Snowflake’s customers with over $1 million in revenue is $3.6 million per year but the average spend from Global 2000 customers is $1 million per year.
Management believes this indicates that they have significant growth ahead for their current and future Global 2000 customers.
Why is this the case?
Snowflake’s move into penetrating the Global 2000 is relatively new and on average, it takes new customers 8 months to reach their contracted consumption run rate. This makes sense because these data migrations take time for large organizations
For several quarters now, management has talked about software and hardware performance improvements providing a revenue headwind to the business. Essentially, Snowflake is optimizing its platform and saving customers money.
I think this has been seen as a negative by many analysts.
It seems like management is actively trying to clear this up and shared these slides which show customers actually spend MORE than what they were previously forecasted to spend after the performance enhancements.
It appears that by improving the platform, Snowflake is getting customers to commit more workloads and purchase more credits — this is what management said they thought would happen.
Management Updated Long-Term Target
I have previously shared management’s updated FY29 targets. Here they are for reference
During Analyst Day, management provided a framework showing that by FY29 they expect to have 1,400 customers with over $1M in annual revenue, up from 184 in FY22 and 77% of product revenue from those $1M+ revenue customers, up from 56% in FY22.
When asked why they increased their FY29 operating and adjusted free cash flow margin targets but didn’t increase their revenue target, the CFO said “we are more confident than ever in our revenue target but we wanted to save an update for next year’s Analyst Day”.
Needless to say, the business appears to be executing very well and management is very confident even given all of the macro fears.
Alright, we’ve reviewed the quantitative aspect of Snowflake as an investment. The rest of this email will be focused on my qualitative takeaways from the Summit and Investor Day.
I took notes on the slides from analyst day (have fun reading my handwriting!) that paid subscribers can access on the member resource document here.
Snowflake Summit & Investor Day Takeaways
Snowflake has 4,000 employees and the growth rate has been incredible. During the opening Keynote CEO Frank Slootman shared a slide showing employee count in FY 19, 20, 21, and 22 as 938, 1,676, 2,495, and 3,992 respectively.
More importantly, Slootman said, “we have not backed off our goal and we see no reason to back off”. This is a very different tone than what we’ve seen from many other companies who have already announced layoffs.
So there are two possibilities. Either Snowflake is uninformed and making reckless hiring decisions that will backfire
Snowflake, one of the premier data companies in the world that can see activity across over 250 of the Fortune 500 companies in America, over 400 of the Global 2000 companies, and thousands of small businesses globally is making an informed decision based on management’s experience, their extremely strong balance sheet, and demand they’re seeing from customers to be aggressive and operate from a position of strength while so many others are going into preservation mode.
I think you know which scenario I believe to be true. I like management’s aggressive approach right now.
Slootman’s confidence in hiring isn’t just based on a gut feeling or too much caffeine. From FY 19 - 22, SNOW earned revenue of $96M, $264M, $592M, and $1.2B.
That’s 12 times more revenue and 4 times more employees in 4 years…
Snowflake’s Verticle Approach to Sales
Snowflake’s experience with one of the largest insurance providers in the United States a few years ago changed the trajectory of the business. During that meeting, Slootman and the executive team realized different types of businesses deal with different types of issues.
In order to build a thriving and enduring business, Snowflake needed to have deep domain knowledge in the business segments they were trying to sell into.
Fast forward to today and Snowflake has now created verticles in the business with specific focuses on segments like insurance, healthcare, pharmaceutical, supply chain, and others.
7 Key Innovation Pillars
#1 All Data - Snowflake allows customers to input any data at any scale, on-demand. Data can come from any origin. Internal data, partner data, providers, and data shared in external repositories.
#2 All Workloads - “All types, any number, any concurrency”
#3 Global Architecture - “Cross region, cross-cloud”
#4 Self-Managed - “One platform”
#5 Programmable - ‘SQL, Python, Java, SCALA, preferred libraries.”
#6 Marketplace - “Collaborate, distribute, monetize”
#7 Governed - “Security”
New Product Announcements
2014 - Snowflake product was first available to try. Goal was to disrupt analytics
2018 - Snowflake set out to disrupt collaboration with data
Today - Snowflake is set out to disrupt applications development with cloud-agnostic applications being built on top of Snowflake.
Snowflake’s new Cybersecurity workload provides a unified, secure, and scalable data platform for helping security teams eliminate blind spots and respond to threats at cloud-scale
Customers like CSAA Insurance Group, DoorDash, Dropbox, Figma, and TripActions are leveraging Snowflake’s Cybersecurity workload to unify data, gain near-unlimited visibility, and combat threats faster with powerful analytics
Cybersecurity partners like Hunters, Panther Labs, and Securonix provide security capabilities on top of customers’ Snowflake accounts with connected applications
Snowflake launches Snowpark for Python, now available to all customers in public preview, making Python’s rich ecosystem of open-source packages and libraries accessible for data scientists, data engineers, and application developers
Snowflake increases data access with new enhancements for working with streaming data, and expands the Data Cloud to open data formats and data stored on-premises
Customers like 84.51°, Allegis Group, Sophos, and Method Analytics leverage Snowflake to drive innovation with expanded data science and application development capabilities
Snowflake’s Native Application Framework enables developers by offering a platform for building, monetizing and deploying data-intensive applications in the Data Cloud
Snowflake Marketplace expands to offer applications, allowing customers to discover and install applications natively within their Snowflake accounts
Companies like Capital One, LiveRamp, and Informatica are leveraging Snowflake to build and distribute high-quality, secure, serverless applications, and collaborate with customers across the Data Cloud
Unistore will enable the future of application development, unlock new transactional use cases, and help teams gain deeper insights from all of their data
Customers like Adobe, IQVIA, Novartis, UiPath, and Wolt are already leveraging Unistore in private preview
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For Reference: SNOW EPS and Revenue Estimates through FY 2032 from Seeking Alpha
These are definitely wrong. It’s impossible to accurately forecast revenues 10 years out…and notice how beyond FY25 there are only 2-4 analysts providing expectations.
However, I do think it’s reasonably to believe SNOW can grow revenue by 25%+ in FY29 and beyond so this gives us an idea of what the P/S and P/E multiples could look like in the future.