“Snowflake has set a target of reaching $10 billion in annual product revenue by fiscal 2029”
“Scarpelli added that Snowflake believes it will still be growing product revenue at a 30% rate by the end of the period.”
https://www.barrons.com/articles/snowflake-analyst-day-51623…
So the P/S is 7 for the year 2029. Yes that’s a problem, if you do the math.
1/ Usual sandbagging
2/ Entirely based on historical consumption patterns of existing customers. Scarpelli added that they do not account for any of the future product releases
Accounting for these, I expect them to do at least 15 billion by fiscal year 2029 (calendar year 2028)
Yes that’s a problem, if you do the math.
It all depends on where the valuation would be at that time.
But here’s a summary of the math.
The EV/S right now is 94.6.
$10,000M in product revenue in 8 years would be 15x TTM revenue ($665.8M).
That is a CAGR of 40% over that time period.
Assume annual dilution of 5%.
If the stock loses 90% of its value from today (EV/S of roughly 10), your return would be a 4.3% CAGR.
If the stock loses 80% of its value from today (EV/S of roughly 19), your return would be a 13.8% CAGR.
If it loses 70% (EV/S of roughly 28), your return would be a 20% CAGR.
If SNOW were to get to $10B in 7 years the CAGR becomes 47% (revenue growth) and the returns get quite a bit better.
Essentially, the math is in the eye of the beholder.
And as Yogi Berra said, “Predictions are tough to make especially when they are about the future!”
A.J.
With all due respect to all the awesome math being cranked out, one thing I’ve learned about these companies is they might look drastically different in 1-2 years, let alone 10.
I figure you either want to own the underlying business or you don’t and go from there. Predicting what a company like SNOW might look like in 2029 is a fool’s (small f) errand no matter how many numbers you throw behind it.
Projected revenue and GP of Snowflake in the year 2029 are close to Adobe’s number today. If we use Adobe’s valuation, the stock price will go up 3 times in 8 years, roughly 15% annualized return. But I think this is just bottom line. Any new product and service launches and acquisition did not take into account.
Are people honestly disappointed they threw out a low-ball guide for 10x-ing revenue in 7 years?
These companies Full year guides 1 year out are sandbags. You can pretty much out the $10bil as the lower limit of what they know they will do. The management isn’t dumb… You under-promise and over-deliver. Every one of these companies does it.
Bnh
This is a truth we’ve witnessed time and time again with these high growth stocks. Like Saul, I try to buy for the long term, and I admit that notion sometimes inhibits me from selling when the available information says it’s time to sell.
Bear recently posted words to the effect if you didn’t already own it, would you buy it today? I don’t evaluate every position every day with that in mind. There’s too much noise to make that decision. But if there’s significant news and most certainly with the quarterly reports that’s a valuable exercise. Clearly, if you wouldn’t buy it, why are you holding it?
So when I see speculations about a stocks value in five or more years I ignore it (irrespective of the math), even if the speculation is being made by an officer of the company. Nobody knows what will happen in that period of time that may positively or negatively impact any one of the companies frequently discussed on this board.
I’d just like to point out that their projected growth rate for fiscal 2029 corresponds to an 80% growth endurance rate. They are forecasting that their growth rate for each year will be 80% of the previous year.
80% growth endurance is the industry average according to Bessemer partners.
They are simply extrapolating the industry trends out into the future. This is a good way to make such a long term projection and have it be defensible.
So the thing to keep an eye on is if Snow’s growth endurance is meeting, exceeding, or falling short of this 80% growth endurance threshold.
As an aside, I think this highlights one reason why Saul’s method is so successful. Essentially it boils down to buying hyper growth, and holding on as long as the growth endurance doesn’t decline drastically. That way one is sure to always be in the fastest growing companies whose growth is slowing down the least (or accelerating). When one is in these companies a p/s ratio that might seem astronomical could be, in reality, drastically undervaluing the company.
Our returns rely on the collective inability of people to conceptualice exponential growth - a pretty safe bet.