Now that the dust has settled, I re-read through the earnings call.
• CFO Scarpelli made a mention of the impact of the macro-environment in his prepared remarks, and it seems a switch flipped on in many of the analysts’ heads, where suddenly they weren’t asking about Snowflake anymore, they wanted insights into the macro-environment. One analyst even felt the need to say:
So instead of trying to dream up the 16th way of asking you about the macro and the impact it’s having, I want to maybe put that aside for a sec, and I mean you’re delivering amazing growth at scale, and certainly, that shouldn’t be lost.
Note that this concern about business slowing due to the macro-environment was finally put to bed with Slootman’s response (snipped for length):
the reality is that, our type of workloads become very heavily grafted into core business processes…these workloads are so heavily grafted into operational processes. So these things are not going anywhere. They’re not optional. They’re not like, what do I feel like doing today? When people put data in Snowflake, I mean, they have some serious intentions on what they’re going to do with that data…it is so embedded into core business processes. It’s not something that you can just sort of shut off for a while until things get better.
As a side-note here, Slootman took a dig at companies like Data Bricks saying that’s for more optional workflows:
That, by the way, there are workloads like that, that’s far more on the data lake side, where essentially you have a massive repository of files.
For me, I take Scarpelli at his word, saying that ups and downs they’re seeing have made them a bit more conservative in their guidance:
…large customers where we saw a decline, we’ve taken that on their forecast, but we have others that are offsetting partially some of that. What I will say is April, we did see weakness in week-over-week growth in our total revenue by customer. But to be honest, the last two weeks of March or May has been very strong. But just given everything in the macro headwinds we’re hearing, we’re going to be a little bit more cautious going into the full year.
Which was later clarified to:
Scarpelli: the last two to three weeks has been very strong and week-over-week growth in revenue that gives us the conviction even with lowering on an individual basis, some of our larger customers that are still growing, just not at the pace we saw them grow last year.
Alex Zukin – Wolfe Research – Analyst
Got it. And is there any – in terms of just maybe quantifying or sizing that impact, is that possible?
Mike Scarpelli – Chief Financial Officer
It is possible, but I told you what I’m going to tell you.
;^)
Scarpelli also said about these customers: You hear them on CNBC talking about cutting costs. And those are the ones who are being prudent and lowering some of our forecast consumption from them. And by the way, we’re going into those customers to help them optimize as well, too.
Which addresses at least one thread we’ve had here recently on optimization of consumption.
and when Mark Murphy of JPMorgan Chase tried to wrangle more non-Snowflake information:
So you had commented on slower consumption from consumer cloud. We’re probably associating that with Facebook, Netflix, Peloton, Snap types of public companies that have missed.
Scarpelli responded:
Well, I’m not going to name the customers, but none of them were the ones you mentioned.
;^)
But, then helpfully:
…there definitely is a focus on top of mind for many CFOs to find out where they can cut costs. And that’s the beauty of a consumption model is you only expense what you use, and that’s what our customers like as well, too. And so I feel good about the forecast that we just laid out, taking into consideration the macro environment and literally looking at our customer’s continued usage of Snowflake, and I don’t see that changing and in aggregate.
Yes, I’m sure there’s going to be some customers that are going to underperform. But likewise, there’s going to be many customers that overperform. And long-term, none of these customers are moving off of Snowflake and most have plans to do more with Snowflake.
• Customer Adds
Scarpelli made it clear that they’re not focused on the aggregate number of customers, but the number of “quality” customers, specifically We want to land those customers that can be the $1 million plus customers.
• Revenue Prediction
I don’t think this has been discussed enough: It was pointed out that 94% of Snowflake’s revenue in a year comes from existing customers, because it takes 6-9 months for them to ramp up. So, the customers they signed up in Q3 and Q4 will start to come online next quarter and the following quarter.
Additionally, the large customers they signed up last and this quarter are going to take 6-9 months to hit revenue. Since we know they’ve been successful signing up large customers, I feel secure in what Snowflake’s near-term revenue will be.
• Pricing
They pushed back hard on questions for changing their pricing model. Slootman said:
we sell best-of-breed, we sell value, we sell impact. We have verticalized our business because we’re really adopting and owning the customers’ mission, the customers’ outcome rather than just sort of whining about whether we’re going to pay a fraction of a cent more for compute credit, right? I mean those are really non-sensical conversations out with customers when they – when a hospital is trying to save lives or improve quality of life. Those are the core missions of the institutions that want to use Snowflake for really amazing things.
And that’s the conversations that I’m certainly having with customers. And people are not coming at us with a hammer like that’s to be cheaper.
With Scarpelli adding:
I’m not aware of a single customer, a significant customer opportunity we’re going after where we lost it over pricing – not a single one.
• Impact of Performance Improvements
As board readers know, there has been a lot of consternation over Snowflake improving performance without raising prices. Management talked about the actual impact of that so far:
Christian Kleinerman – Senior Vice President of Product
We’ve heard from many of our customers that they see the concurrency improvement, the lower latency, and many of them have expressed intent of bringing additional workloads on to Snowflake.
Mike Scarpelli – Chief Financial Officer
There’s been nothing but positive impact from our customers on these performance improvements.
• Data Sharing
As Snowflake followers know, this is a growing portion of the business, and is close to unique to Snowflake. A “stable edge” is simply data that’s made available to others. It needs to be “stable” in order to have others be able to use it.
From the call:
the number of stable edges grew 122% year on year. 20% of our growing customer base has at least one stable edge, up from 15% a year ago. Snowflake’s Data Marketplace listings grew 22% quarter over quarter.
• NRR
Scarpelli repeated that he expects NRR to decline but stay above 130%. Interestingly, NRR this past quarter was 174%, down just slightly from last quarter’s 177%, but above the prior quarters. Snowflake has now had 5 straight quarters of NRR above 168%. Amazing!
NRR is really driven by, a, our largest customers continuing to grow quite quickly, but also new customers that are coming into the cohort that are ramping. And this shouldn’t surprise – this is the real focus that we’ve had over the last two years seasonally and this is why this isn’t just the number of customers, but quality customers.
• Long Term Growth.
CFO Scarpelli: For fiscal year 2029, we are reiterating our target for product revenue of $10 billion, growing 30% year over year.
Investors with a longer time horizon might want to consider making an (additional) investment in SNOW at current levels and then not even looking at it for at least half a decade.
Slootman also reiterated that he’s focused on the long term. That with $5B in cash on hand, they will continue to invest the business and not panic over short-term bumps:
We can’t be crash tacking the ship every time people get a little nervous around the table, right? So as long as we can drive growth as we are with the economics that we are producing in terms of the unit economics, in terms of operating efficient, in terms of cash flow, why would we not be doing it?
I mean, the behavior of our customers and how they’re – the type of contracts they’re stepping up to, they are not in a mode yet where they’re sort of in a massive avoidance mode of doing contracts or trying to do a natural acts in terms of the expenses that you’re generating as part of the platform.
And for me, this remains key. While we rightfully concentrate on how our companies’ businesses are doing, we shouldn’t ignore the impact of the macro-environment on those businesses. If our companies’ customers (consumers or other businesses) cut back for whatever reason (macro or not), that’ll impact our companies’ performance. So to that degree it pays to pay attention. What I got from this conference call is that the workloads being put into Snowflake are critical to Snowflake’s customers and so won’t be removed. Since this is a consumption model, those workloads may ebb and flow to some degree, but management was clear that the most they’re seeing is that some customers aren’t growing consumption as much as they had been. Still growing, mind you. And with the sign-ups of new large customers in the past few quarters, it seems that Snowflake’s near-term revenue growth is secure.