Bear,
My approach to SNOW isn’t so much QoQ based investing, unlike how I view all other companies. I believe Slootman said it best (quote from 2 quarter ago’s investor presentations, where I wrote a separate post SNOW: it's not for QoQ investing):
CEO: We give 10-year guidance. Why? Because we don’t want people to ‘pick the fly s*** out of the pepper’, so to speak, and you have my views of the quarter.
But say, look, is your thesis intact over the long period of time. And those are always the questions that we try and answer.
I cannot run a company on a quarterly basis. There are quarterly aspects to it. Fundamentally, almost everything that we do has a much longer time horizon. When you look at P&Ls, most of the money we spend is not related to the current period, right? And sometimes it’s hard to convey that.
I don’t really feel that encumbered by public market…if you don’t like it, you can go buy IBM. We’ll tell you what we’re doing. We’ll give you a long-term view. We hope you want to sign up for the journey over a long period of time. Those are the kinds of investors we want. But if you want to get out in 90 days and make a bunch of money, I have nothing to tell you.
To be more specific, I’m not going to be too worried about how SNOW performs next Q, when one quarter ahead is really driven by seasonality, short term macro impacts, and how SNOW acquired their customers from 1-2 years ago…a fast ramp on newer customers is not going to come from the record global 2000 lands from this recent Q3, right? I’m more interested in a truly forward outlook on how SNOW is going to do 4 more quarters from now - where they are going to see the supposed fruits of today’s labors of this year’s Q1-Q3’s large customer acquisitions - and management has already given a sneak peak via their confidence in >47% revenue growth guidance for next fiscal year.
They have long term visibility into the customers they just freshly or recently landed.
Unless a thesis breaking event happens in the next Q report, I see no reason to reduce my largest portfolio position out of just one quarter’s fear.
To expand further, I see little choice outside of SNOW in today’s environment.
I think growth durability and FCF growth, and secondarily, limited dilution, is paramount in today’s market, and probably for the longer term moving forward.
Even if interest rates drop down over the next several quarters, it’s hard to imagine investors on wall street are going to suddenly make the same mistake by piling all-in to ‘growth at all cost’ stocks, like they did in the last couple years’ bubble mania.
I’ve learned my lesson and I’m sure the hedge funds of today did too (Tiger Global is down over -52% YTD, for example!)
You’d probably have to wait until this existing generation of investors die off so that the fresh recent lessons are forgotten, in order to get another mania like from a year/two years ago. (The 2000 dot com bubble didn’t really ‘repeat’ itself until 20 years later in 2020-2021, right?
Similarly, housing was in a slump for many years in the aftermath of 2008 GFC — the banks learned their mistakes and tightened lending standards— even though a recession was long passed).
Back to company specific points - I’m not going to bury my head in the sand and buy up companies, for example, like SentinelOne, just because it’s the fastest grower (for now, and at a small scale) and cross my fingers that we get zero interest rates again and that everyone forgets about the 2022 bubble pop. SentinelOne is deeply FCF negative and has just shown massive deceleration in growth.
Instead, I’m going to greatly prize companies with durability of growth and +FCF. SNOW meets this benchmark with flying colors, relative to other SaaS today.
SNOW might double their FCF next year, and even hopefully show re-acceleration in revenue growth in the latter half of the year depending on the beats (and like everyone else, depending on the overall economy).
I would like to know - who else are we expecting to do this next year, and at such a massive >2 billion revenue scale?
Who are we expecting to remain in HYPER-growth several years from now?
Who else has a (in my opinion, believably conservative) $10 billion revenue target by FY29 while still growing 30% that year with 25% FCF, and not only that, but also a plan for <2% annual dilution?
Here’s an interesting chart from Guggenheim last month:
Note in the fine print, they list the following as their examples of current “hyper growth >40%” stocks:
ASAN, BILL, BRZE, CFLT, CRWD, DARK, DDOG, GTLB, MNDY, NET, OKTA, S, SNOW, ZI, ZS
Now let’s weed this list out. Let’s remove those who are not yet hypergrowth (>40%) at scale (>1 billion run rate), and remove those without proven FCF positivity.
We now have CRWD, DDOG, SNOW, ZI, ZS
Of these five, I’m already skeptical that CRWD and DDOG can maintain >40% growth next year, or the year after that. Remember, CRWD is guiding for 30% next year. And ZoomInfo already guiding for what, 17% growth next year or something (yikes - what a drastic fall off the cliff from 45% last Q)?
And I’d be concerned DDOG is in the same boat.
Of these, I can really only see SNOW and possibly ZS doing >40% in two more years.
Anyway, these are my two cents.
Of course, there is tremendous opportunity out there for those willing to risk it - people might do much better by allocating more to SentinelOne or BILL or DDOG or CRWD etc, than towards the ‘always expensive’ SNOW, but I am personally not willing to take the same ‘risks’ from what I’ve learned this year - I had drastically cut my allocation to everything couple months ago except to SNOW