SNOW Q2 Results

Investment Analysis Clubs Saul’s Investing Discussions
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Link to full press release: https://investors.snowflake.com/news/news-details/2021/Snowf…

Snowflake Reports Financial Results for the Second Quarter of Fiscal 2022
08/25/2021
Product revenue of $254.6 million, representing 103% year-over-year growth
Remaining performance obligations of $1.5 billion, representing 122% year-over-year growth
4,990 total customers
Net revenue retention rate of 169%
116 customers with trailing 12-month product revenue greater than $1 million
No-Headquarters/BOZEMAN, Mont.–(BUSINESS WIRE)-- Snowflake (NYSE: SNOW), the Data Cloud company, today announced financial results for its second quarter of fiscal 2022, ended July 31, 2021.

This press release features multimedia. View the full release here: https://www.businesswire.com/news/home/20210825005718/en/

Snowflake FY22 Q2 Earnings Infographic (Graphic: Snowflake)
Snowflake FY22 Q2 Earnings Infographic (Graphic: Snowflake)

Revenue for the quarter was $272.2 million, representing 104% year-over-year growth. Product revenue for the quarter was $254.6 million, representing 103% year-over-year growth. Remaining performance obligations were $1.5 billion, representing 122% year-over-year growth. Net revenue retention rate was 169% as of July 31, 2021. The company now has 4,990 total customers and 116 customers with trailing 12-month product revenue greater than $1 million. See the section titled “Key Business Metrics” for definitions of product revenue, remaining performance obligations, net revenue retention rate, total customers, and customers with trailing 12-month product revenue greater than $1 million.

“Snowflake saw continued momentum in Q2 with triple-digit growth in product revenue, reflecting strength in customer consumption,” said Snowflake Chairman and CEO Frank Slootman. “While increasing net revenue retention rate to 169%, we also boosted gross margin and operating margin efficiency while our adjusted free cash flow was positive for the third quarter in a row.”

Lee

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Link to Earnings Presentation: https://s26.q4cdn.com/463892824/files/doc_financials/2022/q2…

Link to Earnings Infograpics: https://s26.q4cdn.com/463892824/files/doc_financials/2022/q2…

Lee

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The results are in line with expectations. Given the market valuation of the share, the figures should have been significantly better.

What is striking is that many other SAAS companies are accelerating their growth. For example, today Elastic reported 50% revenue growth (significant increase over the previous quarter).

Meanwhile, Snowflake’s growth is declining faster and faster in all areas: revenue, RPO growth, new customers, customers with more than 1M revenue.

It seems to me that Snowflake is having increasing problems with the competitive environment.

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The most important (according to Snowflake) key metric RPO did only grow 6% from quarter to quarter.

A few days ago this was the message from the Cleveland report:

“The report also said that the company’s partners were seeing sales cycles elongate on increased competition from the hyperscalers, particularly Google’s (GOOGL) - Get Report BigQuery cloud data warehouses.”

Yes, they are right. Not good for a stock with such a high valuation. I don’t expect any stock price gains the next 12 months.

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Re: “The most important (according to Snowflake) key metric RPO did only grow 6% from quarter to quarter.”

One might argue that another important metric is the number of new Fortune 500 companies. They added 25 new Fortune 500 in the quarter. That should lead to even better numbers in the long term.

https://s26.q4cdn.com/463892824/files/doc_financials/2022/q2…

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Following up on Zerohedge’s post, I do not believe this report is good news - especially in view of SNOW’S very high valuation. Granted, the absolute numbers look good; but the growth metrics we look at are decreasing quarter to quarter and year over year:


	          Q2	Q1	Q4 ‘21	Q3	Q2
Revenue	         254.6	228.9	190	160	125.4
% seq growth      11%	20%	19%	28%	15%
YoY % Growth     103%   110%	116% 	115%	
RPO % growth	122%	206%	213%	240%

SNOW has an EV/S ratio of 95; in my opinion too high for a company growing at “only” 103%.

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You’re confusing product revenue and total revenue. Product revenue in Q1 was 213.8.

Product (!!) revenue guidance for Q3 is 280-285, with their usual % beat it would represent 18-19% QoQ.

There seems to be a lot of confusion regarding total and product revenue.

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Magellan,

Q1 product revenue = 214M. Q1 Total Revenue = 228.9M. 254.6/214M = 19% QoQ.

-HugoStocklitz

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Right Wushi. I just followed with what SNOW led with on its various press releases over the past few quarters; but I should have clarified it was product revenue.

And I should have discussed SNOW’s net revenue retention rate. Growing slightly quarter to quarter, it’s very high at 169% and looks beautiful.

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I thought this is a great report, market seems to agree with shares up 5% after hours:

  • 18 new F500 customers. There were concerns last quarter because they only added 1 F500 customer (based on the 2020 list, 4 customers based on the 2021 list). These concerns were invalid as 18 new customers is their second highest ever. (they did 19 in Q4 2020).
  • NRR at 169% is the highest over the last 5 quarters
  • Sequential improvement in operating margin from -16% to -8% and YoY from -45% to -8%
  • Revenue growth largely in line with expectations

Zerohedge comments do not make much sense in my opinion. It’s easier to accelerate revenue when growing 40-60% compared to growing >100%. For reference, this is how the deceleration looked like in DDOG and CRWD (based on earliest numbers I could find):

DDOG: 116% - 109% - 91% - 83% - 77%
CRWD: 103% - 94% - 88% - 89% - 85%

And SNOW: 121% - 119% - 117% - 110% - 105%

This is very high-level but I would say that the slowdown in SNOW is less significant than it was in CRWD and DDOG at similar growth pace.

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So let’s compare their estimate for QoQ and Actual for QoQ to estimate where their Q3 estimates land

All are Product Revenue and I used low end of estimate for QoQ calculations.

Q3 Actual of $148

Q4FY21 Estimate was for $162-167 (estimated 9.45% QoQ growth rate)
Q4FY21 Actual of $178 (actual growth rate of 20.27% QoQ)

Q1FY22 Estimate was for $195 - $200 (estimated 9.5% QoQ growth rate)
Q1FY22 Actual was $213.8 (actual growth of 20.11% QoQ growth rate)

Q2FY22 Estimate was for $235-240 (estimated 10.3%QoQ growth rate)
Q2FY22 Actual was for $254 (actual growth rate of 19.24% QoQ growth rate)

Q3FY22 Estimate for $280- $285 (estimated growth rate of 10.23%)

As you can see, they estimate for ~10% QoQ growth and have consistently beat their expectations by ~10%.

Summary: Their guidance fits the pattern what the management has been doing over the last few quarters.

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Interesting point from the conference call:

Snowflake is looking at how to cover the Chinese market. According to management, customers want Snwoflake to have a presence in China.

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Re: “- 18 new F500 customers. There were concerns last quarter because they only added 1…”

Is it 18 or 25… Both are very impressive numbers, but I thought I did my math right. Regardless, the new slide says that they have 212 Fortune 500 customers which is a very impressive number!!!

The report they released with Q1’s numbers said they had 187
See page 13: https://s26.q4cdn.com/463892824/files/doc_presentations/2021…

The report they released today says that they have 212 Fortune 500 customers:
https://mms.businesswire.com/media/20210825005718/en/1186378…

When I subtracted 212 from 187, I came up with 25, instead of the 18. I’m guessing that’s because I’m using old math instead of new math. I’ll note the correction…

Of course, if the Fortune 500 list changed between the two quarters that could account for the discrepancies.

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Is it 18 or 25

The historical figures have been restated.
See the note on the bottom of page 14 of the slide deck today.
It states the numbers have been restated and the growth this Q was 18.

A.J.

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"What is striking is that many other SAAS companies are accelerating their growth. For example, 
today Elastic reported 50% revenue growth (significant increase over the previous quarter)."

This type thinking from a post above is part of why there is still money to be made on high growth
 stocks like Snowflake.  Take the very quick back of the napkin calc below.  Starting with the 
272.2 million in revenue from the past quarter which was 19% growth Quarter over Quarter.  Then 
reduce the QoQ growth by .5% for the next 16 quarters and you arrive at a company still growing 
faster than Elastic grew last quarter.  But then look at the forward yearly revenue number nearly
 10 Billion! And its high margin, mostly recurring etc, etc.  I'll gladly take a 4 year 
deceleration from 100+%! 
 

Also, a thought exercise: What is a reasonable current "valuation" or "EV/S" now for this 
plausible Snowflake in 4 years?  I am not sure. But the numbers below tell me not to be scared by 
the current 95 EV/S.

Qrtrs  	Q Rev  	QoQ	Yearly	Yr Rev Fwrd
Current	272.2  	19%	100.5%	1089
1      	322.6  	18.50%	97.2%	1290
2      	380.6  	18.00%	93.9%	1522
3      	447.2  	17.50%	90.6%	1789
4      	523.3  	17.00%	87.4%	2093
5      	609.6  	16.50%	84.2%	2438
6      	707.1  	16.00%	81.1%	2828
7      	816.7  	15.50%	78.0%	3267
8      	939.2  	15.00%	74.9%	3757
9      	1075.4 	14.50%	71.9%	4302
10     	1226.0 	14.00%	68.9%	4904
11     	1391.5 	13.50%	66.0%	5566
12     	1572.4 	13.00%	63.0%	6290
13     	1768.9 	12.50%	60.2%	7076
14     	1981.2 	12.00%	57.4%	7925
15     	2209.1 	11.50%	54.6%	8836
16     	2452.0 	11.00%	51.8%	9808

It's not rocket science, honestly. Read the Knowledgebase (Thanks Saul), read the highly
 recommended posts, follow the quarterly reports, and have patience. The amazing contributors here
 came by their skills over time and they generously share their thoughts here. The board
 really is priceless. Thank you all.

Crammarc
Long SNOW (10%)

Apologies in advance if I flubbed an equation or the formatting in the table, regardless I'm 
confident the numbers will still speak for themselves.
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I’ve been listening to the webcast and going through the presentations for this quarter and past ones and I have a couple points I’d appreciate guidance on.

Total and product revenues reflect this quarter’s actual usage. RPO is what’s contractually on the books for the future. My first thought is that these two play off of each other somewhat and so, should we look at them in combination for a better general gauge of overall growth long-term? E.g. 285 product growth + 1529 RPO this quarter = 1801, which constitutes 119% growth YoY from 821 in Q2 '21. It is also 8% QoQ from 1661 in Q1.

At the same time, I can’t help thinking that RPO could be lumpy both QoQ and YoY for Snowflake. Looking at the last four quarters RPO has grown (most recent first) 6.8% << 7.4% << 43.6% << 34.9%.

The reasons I think this will be lumpy are two-fold. First, because as SNOW has stated previously, they find that clients use up their ‘credits’ quite quickly once they do ramp up, essentially drawing down the RPO quickly. Additionally, RPO is inherently dependent on contract end dates and so, assuming SNOW products are as sticky as we all hope they are, we should probably expect to see RPO figures “pop” from time to time as their largest clients renew for larger and longer contracts, while other quarters may just be ho-hum (see: this quarter). Seeing the RPO pop in Q3 and Q4 last year 34.9% and 43.6%, while the TTM >1m counts steadily rose from 56 to 65 to 77, then in Q1 the RPO grew only 9.1% while the TTM >1m count jumped from 77 to 104 seems to show the dynamic interplay a little bit, though I’m not entirely sure what to make of the 6.8% RPO growth and 12% TTM >1m count (lowest in 5 Qtrs) this quarter… From Q4 '20 to Q1 '21, RPO only went from 426 to 468 (10%) before that a 47% jump to 688 in Q2 '21 also.

RPO has risen 99m and 97m the past two quarters, but if Bear’s thoughts on Q3 product revenue coming in around 301m, I’ll be looking for RPO to grow ~330m next quarter to keep the combined rev+RPO growth figure around 100% YoY. If RPO only grows 100m like the last 2 Qtrs., that will equate to ~79% combined revenue+RPO growth YoY in Q3. I think I’m rambling now so I’ll stop there. Am I overthinking this?

I did notice how they pivoted slightly in the Q&A from a question about the 10% of the Fortune 500 that signed up in the past 12 months (41 of those 54 in the last 9 months, fwiw…) to saying that <10% of revenue came from new customers this year (22 F500 clients and 851 new clients overall 4990-4139 from slide 13). I’m having a hard time wrapping my head around what all of this put together means, but if I had to summarize what I think, it’s that RPO might be lumpy and difficult to forecast from quarter to quarter, and that could bring volatility to guidance and market sentiment/reaction.

Thanks in advance for any feedback and clarity you can share!
Frank

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Jamin Ball explains why the RPO figure may not be a concern:

SNOW multi year deals started 2020Q2
Last quarter: RPO compared a quarter with heavier percentage of multi year deals to a period without
This quarter: RPO compared two quarters with a similar mix shift of multi year deals

https://twitter.com/jaminball/status/1430706365643706370

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Zerohedge comments do not make much sense in my opinion. It’s easier to accelerate revenue when growing 40-60% compared to growing >100%. For reference, this is how the deceleration looked like in DDOG and CRWD (based on earliest numbers I could find):

DDOG: 116% - 109% - 91% - 83% - 77%
CRWD: 103% - 94% - 88% - 89% - 85%

And SNOW: 121% - 119% - 117% - 110% - 105%

This is very high-level but I would say that the slowdown in SNOW is less significant than it was in CRWD and DDOG at similar growth pace.

Just to attach some calculations to measure the relative slowdown…
Bessemer Partners introduced growth endurance in 2021 State of the Cloud Report.

Here are the calculations for the numbers you just posted.

DDOG : 66%
CRWD: 83%
SNOW: 87%

Bessemer’s rates growth endurance in terms of good, better, best.
Good = 70%
Better = 75%
Best = 80%

As we can see, DDOG falls short of “Good” and both SNOW and CRWD exceed the benchmark of “Best”, with SNOW edging out CRWD by a few percentage points.

https://www.bvp.com/atlas/state-of-the-cloud-2021#The-Good-B…

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