SNOW - Isn't this a solid, long term holding

Sorry if this is OT.

Isn’t the long term thesis for SNOW strong?

Looking at some resources

Morningstar

" Snowflake is a fast-growing provider of data lake, data warehousing, and data sharing solutions… In the past 10 years, Snowflake has culminated into a force that is far from melting, in our view. As enterprises continue to migrate workloads to the public cloud, significant obstacles have arisen, compromising performance of data queries, creating hefty data transformation costs, and yielding erroneous data. Snowflake seeks to address these issues with its platform, which gives all of its users access to its data lake, warehouse, and marketplace on various public clouds. We think Snowflake has a massive runway for future growth and should emerge as a data powerhouse in the years ahead."

CFRA-

Our rating is Hold – it remains hard to refute the breakneck pace of growth, well-respected
management, and seamless usability of SNOW’s data platform, but our enthusiasm is tempered
by the limited investor appetite for pricy stocks currently. Secondly, callouts from Jan-Q
(platform enhancements, modified selling motions for larger clients, and acquisition of
Streamlit) signal legacy providers could be more difficult to replace than originally expected.
Prior conducted analysis suggests performance favors incumbents for bigger workloads often
linked to higher-dollar clients. Moreover, our sense is Streamlit was acquired to integrate
Python programming compatibility for Snowpark, which remains an existing feature from select traditional peers. Risks include the capital-intensive nature of its business. An inability to maintain its current pace of client adds or expansions (net revenue retention of 150%+) could reduce future operating leverage and negatively impact estimates.

Honest question …Is there any question mark in its long term durability?

Compared to say Monday or other e-commerce stocks, doesn’t this have a relatively solid path to growth and profitability, with competition only from the Big 3 Tech, if any?

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Great thanks. As long as the company is phenomenal, I guess I can ignore the noise. Completely agree with the valuation issue…

Interestingly, Mr. Buffet had invested a bit on this company at the IPO price. And it doesn’t look like he has sold yet (despite this reaching crazy values in the last 18 months which would given him 1 Billion in gain in just a few months)…so, I guess he/ Mr. Todd Combs sees long term price appreciation here, and if he holds, I can hold too.

“The billionaire investor’s company shelled out $250 million for about 2.1 million shares in a private placement immediately after Snowflake’s IPO. It spent another $485 million to buy 4 million shares at the IPO price of $120 from former Snowflake CEO Robert Muglia in a secondary transaction.”

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Honest question …Is there any question mark in its long term durability?

Not from me. Snowflake has a formidable leadership team, a great product, and a very clear sense of where they intend to go. The numbers are solid.

The company’s customers, esp. the consumer-facing ones, are not immune to current macro challenges. But those challenges will pass. The CFO observed on the call that May has been stronger than April was. If short-attention-span “investors” want to dump SNOW shares now, fine with me. I’m delighted that I’ll be able to add shares at below IPO prices to my recent initial investment.

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Do you look at the last 12 months with your value P/S 30?

By the way, the forward valuation next 12 months is about 11.6 EV/S (with the actual price $115).

So the valuation did shrink by a factor of 10 the last 24 months by growth and market cap reduction.

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It’s hard to say when every single person who has bought and held the stock is now underwater. All of them.

Growth slowing from 84% this Q to forecast 72% next Q.

People expect better from SNOW, it’s just that simple.

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“Growth slowing from 84% this Q to forecast 72% next Q.
People expect better from SNOW, it’s just that simple.”

Snowflake reiterated their yearly guidance at 1.9M with no change from the previous guidance. Additionally they reiterated 1% Non GAAP operating income for their fiscal year, along with their expectations for the path to 10B as a company.

This doesn’t feel like a major change to me, although the aftermarket is panicking. As you noted, everyone who has purchased this stock is now underwater, that is a tough spot.

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In tough times, there is nothing better usually than a return to the basics.

Can we time the Fed or the market reaction to the Fed? No.
Do we have a foolproof guide to a decent TTM P/S or NTM EV/S or whatever metric? No.

But we can look at the company and at the investing alternatives and make our own call as to whether we like what we see.

I am certainly not selling. I have to see how the next few reports shake out before I decide if I will be adding.

I was particularly interested in the management team’s reaction to an analyst’s almost hysterical certainty in an impeding economic doom and gloom.

(SNAP is seeing doom and gloom but it is exposed to a myriad of variables and targets younger consumers with optional products)

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“I have to see how the next few reports shake out before I decide if I will be adding.”

Sorry, realized that this is unclear.

I mean ZS, S, MDB, CRWD and not the next few SNOW reports.

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So, I just read through the earnings call. A few notes I took.

  • CEO said this quarter’s results make it appear worse than it is because of the blow-out fourth quarter last year. He also said that this growth rate is “durable.”
  • still planning to hire 1500 this year - announced last quarter.
  • last two weeks of May show strong sales, but that predictions of growth are naturally cautious.

Some thoughts: the company is showing tremendous cash flow, but it’s still hiring apace. Companies with excessive headcounts don’t generate cash flow.

Yes, product revenue growth is slowing, but we knew it would never stay triple digit. If this growth rate is truly durable, I will be happy holding the stock.

Gordon

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Gordon,

You said:

"CEO said this quarter’s results make it appear worse than it is because of the blow-out fourth quarter last year. He also said that this growth rate is “durable.”

Where exactly did the CEO say/hint/suggest that the current growth rate (85%) is durable? I do not see that at all.

Cats

Cats,

I read too quickly. It was the CFO, not CEO and had to do with largest customers:

“Our net revenue retention of 174% includes 11 new $1 million customers and reflects durable growth among our largest customers.”

And, after reading it again, I have no idea what it means.

Mea culpa.
Gordon

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I believe that he pointed out that about half of the top 10 customers are growing faster than the overall business, just like last year. This shows that they are far from fully penetrated even within their largest customers that are spending >10M $ a year.

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There are many reasons why i remain invested in SNOW, though significantly underwater.

But to address a couple raised in light of the matters discussed widely this morning, SNOW continues to grow revenue at a rate much faster than most SAAS visible hypergrowth stocks at 70+%, and at an EV of $32B at the moment, is now selling at only 10X forward revenue.

Assume that Slootman’s commitment of $10B in revenue 5 years hence is achieved, 10X revenue would bring EV to $100B, a triple. I would add that it is quite likely that SNOW will greatly exceed that $10B projection which would require a 5-year CAGR of only 25%.

Would it be outrageous to assume a 40% revenue CAGR over that period? Should that occur, revenue would reach $17B and 10X EV/R multiple would yield a 6 bagger for the share price from here, if Slootman arrests the rise in shares outstanding, which i believe he will.

GLTA

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GLTA,

Where did you get a 10x forward revenue? Are you assuming a super aggressive beat to its revenue? It’s trading at > 16x EV/NTM revenue. I am using analyst consensus revenue for NTM revenue.

at the price of $121, EV = 39.6 bil. with NTM rev @ 2,382, this means 16.6x forward. The numbers may be somewhat different depending on assumptions but 10x feels way off.

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At the time i wrote that, share price was $115, 314M shares O/S yields a market cap at 36B, $4B in cash accounts for the difference between market cap and EV per Bloomberg and Yahoo, resulting in the $32B EV at $115 share price, which is improved at the moment.

I think many hypergrowth stocks are crazy undervalued right now.

Slootman is one of the Mount Rushmore level CEOs and I’m with him, along with a vert few other giants.

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