The entire Dec 8 Barclays conference with the SNOW CFO is worth listening. I am practically pasting the whole talk in this post as I find it difficult to exclude much.
I thought it was a goldmine of very granular and some new detail into SNOW’s business, with concrete numbers exposed —unlike the usual fluff and recycled old statements spoken by executives at other company conferences (such as the kinda useless last 3 talks given by DDOG…)
- How does management have confidence that their large customers will eventually spend tremendous long term amounts on SNOW?
They have visibility in the massive spending on GSIs for snowflake migrations. The top 15 alone, from Jan to Oct, sold 1.425 billion in services!
…you have to understand, too, we don’t just find a customer in the quarter and close them. The average customer is 7 months, the average across the board. But large customers are 1 to 2 years to land these customers to just get them to get that first PO to start. And these guys aren’t making decisions for the next 3 months, 6 months. These are 10- to 15-year decisions they’re making in what they’re doing…many of our large accounts, our average Global 2000 lands at $100,000. Yes, we’ve had customers that have landed at $3 million as a CAP 1, we call them, but most land at $100,000. And by the way, when they’re doing that, they also typically sign big service contracts with GSIs to do their migrations for us. And I was actually just looking yesterday, our top 15 GSIs year-to-date through October 31 is the data that I had. They actually sold $1.425 billion in services around Snowflake. And those are all customers that are just starting their journey to Snowflake…People can’t be spending that type of money if they didn’t have in their road map and their plans to move to Snowflake.
…it’s funny, you can see when we’re trying to sell into a Global 2000. And then you can see through their job postings they have people that are looking for Snowflake talent so kind of tells you we’re going to get those deals.
- More clarity on what was mentioned in the earnings call, about the three top 10 customers that declined sequentially in spending. Confirmation that at least one? is in crypto.
…we said on the call, and I will give you this disclosure every quarter, 6 of our top 10 customers grew faster quarter-over-quarter than the company’s growth rate. That tells you. And I did have 3 customers who – this is actually the first time that sequentially declined quarter-over-quarter. And those are 3 in the technology crypto space.
Those 3 customers, actually from when we guided at the beginning of the year, they took out $41.8 million of revenue from us for the full year. These were 3 customers who have gone through some challenging times, but also did some heavy optimization. And by the way, all these 3 customers, we’ve been telling them for a while, we can help you save money, but they were growing so fast, they didn’t pay attention and now customers are paying attention. But I would say those were 3 of our worst in terms of how big they were and we knew there were big savings.
- Some more information on the competitive landscape for on-prem migrations.
Google is the toughest competitor.
Microsoft Synapse doesn’t seem capable of keeping customers!
As for Amazon, SNOW is now the LARGEST independent software vendor for AWS (!!). And, Amazon Redshift is really not able to win in the large customer deals because they simply can’t operate at a large scale like SNOW.
It’s also mentioned that SNOW beats out 9 times of 10 on price-performance with POCs
When we are competing for an on-premise migration, always we’re competing with Google, Microsoft. AWS tends to partner with us more out of the gate. Google is definitely the most competitive there. Many of the times, we only win in an Azure account when Synapse fails. And I’m not saying there isn’t any, but I have been asking my salespeople for a successful implementation of Synapse in a large account, and they can’t find one. I have a lot of companies we’ve heard trying, but generally, we get in there once they fail. I’m sure they must have some, but we can’t find any.
We are actually AWS’, I think we are their now biggest ISV. We are becoming very meaningful to AWS. We just had to reinvent and Frank and me, and they’re leaning in heavier on us, and we’re looking at renegotiating our contract with them right now.
And it’s not just about pricing. It’s about more commitments from them to work with us.
So as I said, AWS pretty much partners with us day 1. They don’t try to compete.
Yes, they still compete in the smaller accounts with Redshift, and that’s a pretty good business for them. But within the large accounts to get all the data in one place, Redshift just can’t do that…We can operate at scale [unlike Redshift].
…When we actually sit down with customers and look at real data not benchmark data, put actual workloads and do POCs, 9 times out of 10, we are winning in price performance and by a considerable margin.
- More detail about the seasonality as SNOW gets bigger and that we are now opened up from COVID. Reiterates, as said since day 1, that 70% workloads are scheduled vs 30% human interaction.
We constantly fine-tune our model based upon the history. And we have seen, as we’ve become more of a global company and especially what we have seen, for instance, we sell to a lot of U.S. companies, but they have employees around the world. They have a lot of users in India. And you actually see during the Indian holidays, and there’s a lot of holidays in India, I’ve really noticed this year, that the downtick daily consumption tied into those holidays. And so our models are all, the more history we have, the better we are at forecasting that stuff.
…And unfortunately, during COVID, it was very different when people were working remotely. People aren’t taking holidays when people are sitting at home, they were continuing to work.
…I do see seasonality in consumption. Clearly, this quarter has a lot of holidays, and around July 4th and then the summertime holidays, we do see that because remember, about – roughly about 70% of our consumption is done through scheduled jobs. No human interaction, about 30% is human interaction with the system. And you can see that on the holidays. I see it on Saturdays and Sundays how it drops off, but it’s saves that, that base roughly 70%.
- Just as @laneylawyer quoted in the other thread: SNOW helps companies make more money, which helps SNOW stay resilient in growth in an economic slowdown. It’s not simply about cost cutting like when selling observability products in DDOG or cybersecurity in CRWD.
…when you have challenging economic times you…be able to sell on value. And it’s not just a cost replacement. It’s what’s the value you’re driving. And data is becoming one of the core assets of most companies today, whether you’re a media advertising company or a financial institution, getting real-time data and insights into your business is a pretty important piece to companies. And we’re getting data. There’s one large oil and gas company. I know we sold them $3 million worth of Snowflake. They have consumed, and they themselves have said they see $30 million in value. My comment was we sold that too cheap.
- How does SNOW give guidance? As mentioned above, they gain confidence in their forecast with looking at the spending on global system integrators for Snowflake.
I’ve been saying since day 1, we try to guide the business to try to have a 3% to 5% beat, I think, it’s a good beat. And given the challenges and what’s happening in the economy right now, I’m pretty pleased with how the company has performed.
My FP&A team, I have a team of data, small team of data scientists that build the model we reforecast by customer. We kind of go down to the top 200 – I forget if 280 customers. We actually go and talk to the reps: ‘Does this make sense? What’s going on?’ I sit through a lot of the big accounts. I sit through EPCs, I read, I get – there’s all kinds of deal information I read and what customers are doing. That’s what gives me the confidence.
But I get a lot of confidence when I started looking a lot more into what people are spending with GSIs. People don’t spend that type of money unless they plan on doing something on Snowflake. And I’m digging into who are those big customers, where they are on their journey.
- Some more detail about gross margin expansion and growth in FCF generation.
It’s all about getting the largest customers to spend huge amounts over time.
That makes the S/M spend efficient, it allows usage of paid for cloud reserve capacity at scale, and permits SNOW to continually renegotiate with the hyperscalers.
I’ve said this since day 1… [gross margins] may get to 80%, but it’s not going to go above 80%. I think we can get into the high 70s. Free cash flow will continue to expand.
There’s still more room in gross margin – in the gross margins. We still – we have, I think, 32, 33 deployments around the world. We have a lot of them that are at scale. When you set up a deployment say in AWS, Singapore, we’re paying for a certain amount of free pool, we call it. That’s the reserve capacity. We’re paying day 1 before we have a customer. We have to get to a certain level before that starts to become profitable for us. We have a lot of deployments that are not at scale that will help drive margin up.
And as the bigger customers become a bigger percentage of our overall business, that are on business critical, those guys, we have better margin profile on those customers. So that will continue to drive gross margin along with renegotiating with the cloud vendors over time…, as we get into these bigger customer relationships, you’re going to get a lot of leverage out of sales and marketing. If you can have $50 million-plus customer relationships, those are very, very efficient from a sales and marketing standpoint.
We are very much focused on growth, but it’s not growth at all costs. It has to be efficient growth. I actually just had a 4-hour meeting yesterday with our – all of our executives who are all hounding that they need more money, I need more money, and it’s not unless you can justify how it’s going to drive revenue and actually see the payback you’re not getting it.
- The unending emphasis on the large, large, large customers. As said repeatedly, this is what separates SNOW from other high growth SaaS companies. It’s why I think SNOW deserves a higher relative premium valuation to other SaaS (even though technically, SNOW begins each quarter with zero dollars in revenue!)
The ability to deliver such great value to customers that many of them can spend $10 million, 50 million, 100 million in contracts means you’ve got something very special in the leadership, product, and mission criticality.
It’s how you get 160-170% in NRR, and it’s how SNOW has shown BOTH the highest YoY and highest QoQ growth during an economic slowdown for the past 2 quarters, while generating good FCF:
SNOW 18% QoQ → 12% QoQ at >2 billion run rate (positive FCF)
CRWD 10% QoQ → 8% QoQ at >2 billion run rate (positive FCF)
DDOG 12% QoQ → 7.5% QoQ at 1.75 billion run rate (positive FCF)
ZS 11% QoQ → 12% QoQ at 1.4 billion run rate (positive FCF)
NET 10.5% QoQ → 8% QoQ at 1 billion run rate (negative FCF)
…we are very much focused on large customers. I will say, when we joined – when Frank came on to the business, I’m not going to say they [SNOW] didn’t have the large customers, they did, but they had a disproportionate amount of, what I’ll say, commercial customers. We are very much focused on the largest companies in the world. And that’s why I always tell people, I don’t even look at how many customers we have. I look at how many Global 2000, how many Fortune 500, who are the marquee accounts in certain regions, countries, verticals. That’s what I’m more concerned about the quality customers, the ones that I know can be $10 million-plus a year in revenue.
And so we’re very much focused on those large customers. I’m not saying we’re ignoring the low end of the market, when I say low end, the SMB. We have a group that focuses on those 500 and less employees in the company. I called out that we saw some weakness in those. And what I want to stress – those guys are still growing and consuming. They just are not growing at the rate we are forecasting the growing consumption.
- CFO reiterates 2% per year dilution guide for the long term
We’ve been running at pretty low dilution given our growth. We’ve been running around 2%. I think this year, it’s going to probably be closer to 3%. But longer term, my goal is to keep it at 2%. And clearly, you have a trade-off is do you pay people more cash and less equity or vice versa. And I’m spending a lot of time looking at all of that. But clearly, our cash balances we have – we had $4.9 billion in the bank at the end of last quarter, and that will continue to grow. While we’ve been doing M&A, we have done a quasi-buyback in terms of we now do net settlement on RSUs with people.
- When asked about what they plan to do with cash (besides M&A to acquire talent/technology):
I’m looking at a number of things right now, it’s earning a pretty good interest. But I’m not naive. I’ve been looking at different things with share buybacks and other things like that, but haven’t formalized anything.