SNOW Q3FY23 Earnings Call

My notes from the SNOW Q3 FY 23 Analyst Q/A
Frank Slootman, CEO
Michael Scarpelli, CFO

Q As you think about next year, how do you think about what you think about new customers?
A Most of the revenue is driven by existing customers, however, they’re focused on landing the highest quality clients such as those in the global 2000.

Q Are you starting to see that the network effects are helping your verticals, and can certain verticals grow in because they’re locked in.
A See this in financial services in the data sharing that’s driving this. Each industry has its unique dynamics that drive this. They’re all a little bit different. There’s a lot of data gravity that benefits SNOW dramatically, and reduces friction, especially in verticals such as financial services.

Q 47% growth in FY24. Draw the bridge for us.
A Q4 has a lot of holidays with customers traveling, etc. They think Snowpark Python will be a FY24 dynamic.

Q Stripping out the largest 10 customers, what are the underlying trends?
A They continue to see strength in financial services and advertising and weakness in APJ because FX is impacting them and in the SMB customers w/ 500 or less employees.

Q Guidance in next quarter, what are you assuming for next year. Walk us through puts and takes in guidance trajectory.
A Considering more of the same, and all they can do is forecast based on what they see today.

Q When do some of the optimization patterns start to take over?
A Technology has underperformed and freezing hiring and CFO is not factoring in any growth from these companies this quarter.

Q Q4 revenue guidance was below consensus. Did it tilt one way vs. the other.
A They saw a slowdown in October. November is starting to tick back up again given the macro backdrop they have.

Q Slowing consumption and weaker macro environment would be focused on certain verticals. Is this still the same?
A It hasn’t changed that much and there are certain verticals such as technology that are not performing very well. Financial services are very strong as is advertising/media, which is driven by clean room technology. SMB slowdown in consumption, is not changing.

Q Where are you focusing future investments? Hiring?
A Very much focused on hiring and sales force going into existing markets rather than expanding into new markets geographically or vertical wise. 6 month typical lag time from land to generating interest.

Q Competition.
A AWSM and Microsoft have been healthy and Google has been more of the same.

Q What do you think will be the average G2K spend in the future?
A There’s no reason why a typical G2K cannot spend $10M on Snowflake. This is a marathon, not a spring. Capital 1 is their largest customer, and it has taken them 5 years to ramp to this size.

Q Legacy migration
A Selling into large companies takes 6-9 months to ramp to where they generate meaningful revenue.

Q Data ingestion
A Past they bleeding edge customer, now it’s FOMO, fear of missing out, we cannot be left behind. In other words, their customers want to lean in and are clearly identifying what is holding them back from getting there.

Q RPO in 4Q
A From a current RPO perspective, they typically see more holidays and travel amongst their customers during Q4.

Q Higher free cash flow and longer target looks pretty good, what are the larger upside drivers for this?
A Part of it is what they guided to. Slowing their hiring down next year, so there’s an opportunity to put more $ in their pocket. (not exact words).

Q Given current Macro environment, can you talk about how the larger customers will grow.
A Spending more time with customers to make sure customers are using SNOW the most efficiently. Training and product enhancements.

Q What is revenue exposure from your SMB customers?
A It’s less than 10%.

Q On a short term basis, how do you plan on mainitaining sales?
A Ramp up time just takes (2-6 months) a longer time. Their spend on hardware improvements is really hitting them this quarter.

Q Expanding number of use cases. Do you have insight re: customer’s appetites into expanding into data science and how quickly in the next year or 2 this will happen.
A Seeing pretty high interest, and the willingness to expand the use cases seems unaffected.



While we are currently in our planning cycle, we would like to discuss next year’s growth outlook based on the consumption we are seeing today. For the full fiscal year 2024, we expect product revenue growth of approximately 47% and non-GAAP adjusted free cash flow margin of 23% and continued expansion of operating margin.
This outlook includes a slowdown in hiring, which we evaluate on a monthly basis, but assumes adding over 1,000 net new employees.

The next fiscal full year guidance of 47% in growth was the most incredible take away I had from listening to the conference call.

If I’m not mistaken, an average 10% QoQ growth for 4 straight quarters leads you to nearly 47%, at 46.4% growth.
So suppose they guide for 10% QoQ product revenue growth, on average, for the four quarters next year. And suppose they ‘beat’ this guidance at +3.5% each quarter, on average. This leads to an ‘actual’ growth of 68%. And at a guide of 23% FCF margin.

SNOW is a clear standout here in terms of management guidance/confidence in their visibility, despite being on a consumption model, performance increases that reduce short term revenue, AND in the face of macroeconomic headwinds, AND doing so at possibly 3B revenue run rate next year.
Which other SaaS companies out there at similar SCALE and PROFITability can positively tell themselves and public investors that they can grow like this?

CRWD is saying they may only do 30% growth!
DDOG may be on track to say a similar 30% FY guidance next quarter.

I believe part of SNOW’s stand-out strength ultimately lies within its product value…using SNOW can help customers not only save on costs, but also make more money

I would argue making money is more mission critical to an enterprise in an economic recession, than trying to save money on cybersecurity by using CRWD or cloud observability expenses with DDOG.


I don’t think that’s correct, Jon. They would have to do about 14% on average QoQ to end up at 68%. Might want to show your work with some estimated numbers, but that doesn’t seem very realistic to me.



The average of the last four quarters of beats is about +3.5% for SNOW

Hypothetical company with 100M rev in 4th quarter, guides 10% QoQ every quarter for the next fiscal year, and beats each quarter by 3.5%:

Q4 actual 100

Q1 guide 110; actual 113.85

Q2 guide 125.23; actual 129.62

Q3 guide 142.58; actual 147.57

Q4 guide 162.33; actual 168

168 divided by 100 is 68% (in SNOW’s case, full year growth would be 57% if we assume next Q is 540M prod rev, but the final Q4 next FY would be 68% YoY growth)


Not saying that’s impossible, but it’s a pretty rosy scenario. Each time your guide would be 10% higher than the revenue in the current quarter. Just look at the last couple quarters of product revenue:

Q2: 466.3m of product revenue, guide for Q3 was 505m, so 8.3% higher
Q3: 522.8m of product revenue, guide for Q4 was 540m, so 3.3% higher

Now there were quarters in the past, of course, where the guide was 11 or 12% higher…but at this scale, to re-accelerate to 10% AND to do that in 4 straight quarters…that’s an aggressive projection indeed.



Aggressive - absolutely. I’m painting the bullish but as you say, not totally impossible, reaccelerating growth scenario next year, given what we know is their presumably conservative guide of 47% next full FY growth.

This bull case is as ludicrous as AWS growing 30-40% YoY on revenue run rates of like 70B, except AWS actually did it.

Same with Azure and GCP posting ridiculous numbers at a scale multiples that of SNOW’s current size…so that’s part of the bet, in my opinion, that SNOW has demonstrated results that are similar to a hyperscaler (at minimum, it has shown it more so than any other public company)


I just finished the $SNOW call and WOW. I think the macro environment is masking a EXPLOSION.

My reasoning for this BLIZZARD is all around large customers. Snowflake has been prioritizing large customers for a while. However, this color on the call really struck me.

Product revenue from the Global 2000 outpaced the company as a whole, growing 40% quarter over quarter. Global 2000 customers now represent over 40% of revenue

By my math, this cohort accounted for about 209M this quarter. Up from last Q somewhere around 149M. This puts last Q’s percent of total revenue around 32%.

How long does it take this cohort to get to 50%? How long to 60%? Is it reasonable to assume in 2 q’s, it’ll be 50%? If so, even with HALF the growth rate of what they experienced this past Q, what happens to TOTAL revenue growth rates?
We know it takes a long time to ramp, these companies will continue to ramp, are we seeing an inflection point with the G2000 customers?

I bought more today after reading & listening to the report. I broke my 20%-ish max allocation guideline. Couldn’t resist.


My ears heard 14% QoQ growth in G2K (Frank said “teen” not “tee”), and SeekingAlpha’s transcript had this as well. Fool’s transcript as well as Snowflake IR’s own transcript showed it as 40%.

Verified it with IR, who is correcting their transcript ASAP.