SNOW 2021Q2 Conference Call Take-Aways

I just read through the transcript of the conference call a couple of times (located here:… ). Here are some of my take-aways:

• NRR will stay in the 160s for the rest of this year (which is super-high), and be in the 130 to 140 range for years to go.
• Snowpark has not yet been released. I expect this to drive even more business in the coming quarters.
• Snowflake targets customers within specific vertical industries: financial services, healthcare and life sciences, retail and CPG, advertising, media and entertainment, technology, public sector, education, and manufacturing. But, Snowflake is a platform, a single product that supports all verticals. These are just the ones with which they chose to start.
• The sales cycle involves helping customers think differently about migration. Slootman: People are first preoccupied with moving data to the cloud, then moving workloads to the cloud, and then having sort of pulling up, and having a look at what’s next… What you don’t want to do, and this is what we tell every single customer that we meet with, is to recreate the silos of the past in the cloud because they’ll find the exact same set of challenges that they have today. So, the data cloud conversation has to happen upfront to prevent people from resiloing their data and really selling themselves short on the potential of data sciences, machine learning, and all the advanced analytics capabilities that are coming down the pike.
• International expansion appears to be in relatively early stages. EMEA and Asia-Pacific are growing. New would be China, which customers are asking for. Not said in the call is that to work in China means giving the Chinese government access to data collected and stored in China, and the complication is how to do that with as much privacy as possible and to not intermingle data from outside China into Chinese servers.
• Federal business is a new growth opportunity area they have yet to tackle. Slootman estimated it could end up being 15% of their total business.
• CFO Scarpelli re-stated what he stated last quarter about how new customers spend: “As a reminder, when we land these customers, it takes 9 to 12 months before they really start consuming at a rate. So, what’s really driving the revenue this year are all of the customers we landed – those large customers we landed last year. And I want to stress, too, it’s not just those large – we have a lot of small customers that drive a lot of revenue, too.”
• What drives people to adopt Snowflake? VP Kleinerman says: “the breadth of the platform that we are presenting to our customers, not only performance advantages relative to alternatives but the economic benefits that our performance represents. We hear that consistently, and that has driven migration from a variety of platforms.”
• Slootman was asked what is the biggest driver of business to Snowflake. He has a long answer that I’d like to quote in full, but TMF doesn’t like that, even when it’s from TMF. So I’ll try some snippets:

  • “There’s a lot of latent bottled-up, pent-up demand that has literally grown over literally decades where people have – because of fixed capacity limits on storage, on computational, or contractual limitations, they have not been able to do what the technology is now capable of doing. So, just unlocking that puzzle and allowing workloads to be provisioned, allow unlimited number of concurrent workloads, let jobs run every night as opposed to once a month, if you’re lucky.”
  • “There are brand-new use cases that are exploding in several of these verticals that are driving a lot of demand as well.”
  • “This is not, you know, OK, we have an existing workload, we’re going to move it to the cloud and call it a day. That is not the nature of this business. This is a very fluid, dynamic process where people are doing brand-new innovative things. The great thing about the public cloud combined with Snowflake is that technology is no longer standing in the way. What is only standing in the way now is your imagination and your budget.”
    • CEO Slootman: “We’re batting 1000 when we go down the data cloud path.” That’s huge, IMO.
    • Later in the call, Slootman talks about how migrations from legacy platforms like Teradata are up 30% year over year, but he still regards the enablement of new use cases to be the biggest driver for business.
    • Snowflake provides both data governance and security, as well as sharing when you want. Tastes great; less filling.
    • One of Snowflake’s big advantages is that applications “run closer to the data,” which effectively means there’s less copying of data from one place to another in order to run applications than in most other current products. This improves performance greatly and reduces costs.
    • Snowflake enables customers to have a single environment whether the data is in Amazon, Google, or MS Azure.
    • Data sharing is a big feature that will drive new business as it snowballs (sorry, couldn’t resist). Snowflake has seen “tremendous growth in the data listings that are coming onto the marketplace. And by the way, the reason that they’re coming is because they’re viewing Snowflake increasingly as a place where they can sell data. And the network effect starts to be induced, and more data begets more data, right, because it becomes a very rich environment after a while. So, we’re very positive with this quarter with the growth in listings, the growth in data, and so on.”
    • While the pandemic hasn’t hurt Snowflake’s business, they see future potential for industries that were hard-hit (hospitality, aviation, etc.) as future upside as those verticals recover.
    • When asked about competition: “You know, not really…there’s really nothing terribly noteworthy in this area.” More on this, including my thoughts on Databricks, later.
    • The behavior of new customers is still that most start with 1-year contract, and then on renewal do a multi-year contract. In other words, they love the product and are willing to make long-term commitments to it.
    • Slootman gave a couple of examples of Snowflake adoption: One was the retail vertical, where sharing of data between packaged goods providers and retailers helps with simple things like restocking prediction, but also on new insights that can be derived. Another was where a big pharma company told them that longevity and quality of life advancements will not come from life sciences, but from data science, and they think the insights developed will have the most impact.

So, from a business perspective, not a numbers perspective, my view is that Snowflake is doing all the right things. They’re hiring, but they’re “very cost-conscious” when spending money on anything. They’re not just getting business migrated from other platforms, but are enabling new applications that can only be enabled on Snowflake. When they have a new capability like Snowpark, they line up over 50 business partners beforehand to support the rollout.

In a previous post, I discussed Databricks’ “announcement” that they’re going after Snowflake with SQL support. What Slootman says about what drives Snowflake’s business, however, makes me laugh at that. Snowflake isn’t just a Data Warehouse in the cloud supporting SQL. It’s a storage/compute eco-system that’s efficient, cost-effective, and easy to deploy and use. Snowflake’s data sharing feature by itself is hugely compelling and something that won’t be easily replicated by Databricks or anyone else (not that Databricks is even thinking about that) - and even then Snowflake is probably years ahead in terms of the platform’s sophistication. So when Slootman says “there’s really nothing terribly noteworthy” about the competition, I don’t think he’s bragging.

I personally don’t know where the Saul-style company performance numbers analysis leads, but I read Bear’s take with great interest. Without discounting that in the slightest, however, I don’t see how any medium term view of Snowflake is anything but hugely positive. This isn’t like selling security services or providing loan application insights, but rather selling a platform to companies building analytical applications. And, a platform that’s not just easy to use and cost-effective, but that enables use cases no other platform can due to data sharing. Bear is probably right that in the short term there are other companies who will put up numbers that make them appear to be growing faster, but I view Snowflake today as laying a foundation upon which we’re already seeing applications built, and yet the future growth potential is even larger. Maybe you’d get a larger return investing in something else today and moving to Snowflake sometime in the future, but I don’t know how one would time such an investment. I suck at market timing, anyway. At this point I’m content to have a decent sized position in SNOW and to continue to add on any price weakness. SNOW is certainly not a momo stock, but it’s also not a slow grower by any means. If “the numbers” show a slow-down, then the numbers are missing the big picture. This kind of sustainable growth deserves a place in my portfolio.