SNOW Q4 and Annual Results

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

Snowflake Reports Financial Results for the Fourth Quarter and Full Year of Fiscal 2021
03/03/2021
Product revenue of $178.3 million in the fourth quarter, representing 116% year-over-year growth
Remaining performance obligations of $1.3 billion, representing 213% year-over-year growth
4,139 total customers
Net revenue retention rate of 168%
77 customers with trailing 12-month product revenue greater than $1 million
SAN MATEO, Calif.–(BUSINESS WIRE)-- Snowflake (NYSE: SNOW), the Data Cloud company, today announced financial results for its fourth quarter and full year of fiscal 2021, ended January 31, 2021.

Revenue for the quarter was $190.5 million, representing 117% year-over-year growth. Product revenue for the quarter was $178.3 million, representing 116% year-over-year growth. Remaining performance obligations were $1.3 billion, representing 213% year-over-year growth. Net revenue retention rate was 168% as of January 31, 2021. The company now has 4,139 total customers and 77 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.

“We finished our fiscal year with strong performance and reported triple-digit product revenue growth,” said Snowflake CEO, Frank Slootman. “Remaining performance obligations showed a robust increase year-on-year, reflecting strength in sales across the board. Coupled with this rapid growth, we saw improving operating efficiency while expanding our footprint globally. These results indicate that customers across multiple industries rely on the Snowflake Data Cloud to mobilize their data and enable breakthrough data strategies.”

Lee

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https://event.on24.com/wcc/r/2979526/02465494D85C2AAF3910557…
Snowflake Reports Financial Results for the Fourth Quarter and Full Year of Fiscal 2021
03/03/2021
Product revenue of $178.3 million in the fourth quarter, representing 116% year-over-year growth
Remaining performance obligations of $1.3 billion, representing 213% year-over-year growth
4,139 total customers

Snowflake beats across the board and shows FCF positive. Its trading at 234 in after hours. Sounds like a buy opportunity to me. Anyone else care to comment.?

draj

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Draj, per Seeking Alpha, the reason for the disappointment was a larger than expected GAAP net loss:
Snowflake (NYSE:SNOW): Q4 GAAP EPS of -$0.70 misses by $0.26.
Revenue of $190.4M (+117.4% Y/Y) beats by $11.86M.

I am more interested to know what the Non-GAAP net loss was but cannot seem to find it anywhere in their 8K. Perhaps they didn’t report it? Even though they have GAAP to Non-GAAP reconciliations littered through the report.

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Draj, per Seeking Alpha, the reason for the disappointment was a larger than expected GAAP net loss:
Snowflake (NYSE:SNOW): Q4 GAAP EPS of -$0.70 misses by $0.26.
Revenue of $190.4M (+117.4% Y/Y) beats by $11.86M.

I’m aware of the net loss. Nevertheless they show increases in all the key growth metrics and I’m impressed by the FCF. And Their large customer no took another jump.

See Sauls comment at post no 74192

draj

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All these results are priced in and they expect a slowdown this year. No 3-digits growth anymore.

I think we will see the stock price below $200 sooner or later. Don’t forget: A lot of insiders can sell in a few days.

I’m a buyer below $200, better below $150.

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for coming year they are guiding to 96% growth, 71% gross margin and break even FCF,they are also reporting major new client growth and sound very upbeat on the EC.

Stepped up staffing.

Very aggressive marketing. I’m guessing we are seeing a bottom.

cheers

draj

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Yeah, full year guidance for 81-84% rev growth. That‘s probably the main reason aside from macro background and EPS miss. Gross margin 71% is not bad though. Still too pricey to my taste with market cap of 70b and 2021 revs of 1-1.2b. Could be wrong here.

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Important too: Lockup Expiration is 5th march. Combined with the correction in tech stock this could create a buying opportunity.

So no hurry to buy more shares so fast. I would wait a bit.

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So no hurry to buy more shares so fast. I would wait a bit.

How much % are you trying to save and what % of that savings would it be 4 years from now if you miss out on a great company for market timing reasons ;).

I don’t mean to imply THIS is the company you want to apply that thinking to, but this is what I think of every time I see someone talk about waiting a bit for timing reasons. Maybe it is just semantics. If you have better ideas and feel more comfortable with money in other places then that is a decision we all must make (buy the best ideas and not try to worry about owning them all).

…That said, you DID say “I would wait a bit”, so…I wish you all the best.

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My 2 cents on SNOW Q4 results.

First of all, I don’t really care if others are price anchoring and waiting for the stock to pullback. The objective here is to present data and analysis and state your position. You want to wait? Fine. You think it will pull back – then state what data you base that analysis on. That, I believe, is the purpose of this board.

Back to my 2 cents …
Q4 was very good from a revenue and customer growth perspective:

  • Total Revenue - $190.5M - 117% YoY growth and 19.3% QoQ
  • Product Revenue - $178.3M - 116% YoY growth and 20% QoQ
  • 4139 total customers, up 585 or 16.5% QoQ
  • 77 customers with > $1M TTM revenue – up from 65 last quarter
  • Remaining performance obligations (Future unrecognized revenue) grew to $1.3B – 213% YoY and 40% QoQ
  • nonGAAP operating loss lowered from $48M in Q3 to $46M in Q4 while revenues grew
  • Note: GAAP Operating loss grew – I believe mainly because more shares were issued to employees
  • Reduced annual cash burn by $128M
  • 800 new employees in past year, more in coming year – many of them in sales, marketing, and customer engagement

Guidance:

  • Q1 Rev - $195M-$200M – 94% YoY growth at midpoint
  • FY22 Rev - $1B-1.02B – 82% YoY growth at midpoint
  • Reduction in GAAP negative operating margin to (23%)

Those numbers showing continued high level of growth and reduced losses while increasing employees combined with key customer wins (Blackrock, 19 Fortune 500 companies, etc) and partnerships (Aladdin) gives me confidence for continued FY22 growth in revenues, lowering losses, and increased stock price.

But, the pessimist in me worries about a couple of things … the concerns I have:

First - Growth % is slowing and will no longer be triple digits. This is most likely a big reason for the initial pullback after hours.
That said, while not triple digits is will still be high double digits, well above 90% of the companies out there. Is the price based on >100% growth, hard to tell, but with the price at near it’s mid-Sept post IPO price, it doesn’t quite seem that way to me. That is why I believe (hop) that the market is seeing this and the move back up after hours after the initial pullback.

Second - The Consumption Business Model – it works for them now and will certainly work for the next X# of years. The concern I have is what happens when valid alternatives come into play. The problem with the consumption model is that customer costs can be uncertain – if use more, you pay more. Most senior management at most companies have budgets to work within - unknown or usage based costs scare them. I have seen this in other industries and over time two things often start to occur when consumption models are in play:

  1. the competition starts selling their solution on “known fixed costs” that are lower than what you are paying under the other suppliers consumption model.
  2. Management wants to cut costs, so they throttle the consumption to keep costs in line. This opens the door for competition

Will these happen with Snowflake, hard to say because I don’t know the conditions of their contracts and if the product usage can be throttled. But I have seen it before in other industries which I have been directly involved in (on both the customer and the sales side) so it is a concern I have.

This concern (consumption model) is what held me off from buying SNOW initially, but I gave in and bought some in my taxable account in Nov and in my retirement account in mid-Feb (bad timing).

A Distant Third Concern - Lock-up ends March 5 – I expect short term choppiness in the stock – may go down, but all tech is going down right now. I also expect that many employees will continue to hold. This is a near term event that will hold stock down for a week or two and then life will move on. So I see more buying in my near future.

Finally, regarding the Elimination of Class B shares (conversion to Class A) … Interesting move that I think is part of the reason for the pullback – the people who led this company to success so far will have less control in it’s direction. Insiders still own a lot of stock – for now anyway (see lockup comments above). But what other implication are there for this? I don’t know and wondering what others think. Is this a non-event?

Long SNOW and may add more in the coming week.

Jeff
aka bornGiantsFan

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Hi Guys,
The growth has decelerated from previous quarters, but in a way that’s law of large numbers isn’t it? Unless your company’s ticker is ZM, we can’t be expecting these companies to go at 150-200%+ growth rate YOY, can we? To me the guidance of $1B still represents a 80-85% Fiscal growth. Considering that ZM was a fulltime beneficiary of pandemic, I am not sure if one can say the same about Snowflake. Infact as other beaten up sectors (Energy, Travel, etc.) tend to gain steam over next 2 Years, those customers would also spend towards their journey of digital transformation. So if SNOW can maintain a 65-80ish% growth rates over the next couple years, then its still a solid business.
Naturally, the question becomes whether the Share Price is worth that $1B or $2B in few years, which I am not even going to pretend I know the answer, because I am too new to all this and makes life harder :slight_smile:

However, I did have a question for borngiantsfan (or anybody else) about the last post -
Can anyone explain how this March 5th lockup works?
Did a little bit of reading - Is it that some of the insiders holding Snowflake shares are allowed to Sell if they want to after March 5th?

  • Does historical trend show for other companies that upon lock-up release, shares often fall 90% of the time? Or it all varies? I am asking because due to a big drop over last few weeks in SNOW, would it be fair to assume that even those investors wouldn’t want to cash out at lower price and hold most likely?

Finally, regarding the Elimination of Class B shares (conversion to Class A) … Interesting move that I think is part of the reason for the pullback

borngiantsfan, Can you please elaborate on this - How does a conversion to Class A Shares impact investors?

Sorry if these are dumb questions.
Thanks

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“The growth has decelerated from previous quarters”
Yes, revenue percentage slowed from 119% down to 117%. Sequential quarterly growth did increase to $30M from $27M.

This is why understanding how Snowflake’s business differs from traditional SaaS subscription models is important.
Remaining performance obligations were $1.3 billion, representing 213% year-over-year growth.
That’s money in the bank, yet to be counted.

Net revenue retention rate increased to 168% from 162%.

Does someone actually think a company giving guidance of +96% for the new fiscal will not substantially exceed 100%?

Snowflake’s valuation could always be questioned. But that’s separate from the business results. The company is firing on all cylinders.

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I am seeing lockup expiration date as Mar 15 per MarketBeat.

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Hi ICAAN,

Good questions that I probably could have explained a little more in my post.

The Lockup Period “restricts the ability to sell or transfer any shares of the Company’s capital stock until the earlier of (a) March 15, 2021 and (b) the commencement of trading on the second full trading day following the Company’s public release of financial results for the fourth quarter and full fiscal year ended January 31, 2021 (the period ending on the earlier of (a) and (b), the “Lock-Up Period”), subject to certain exceptions.”
Since the public release of the 4th quarter and full fiscal year was TODAY, (b) occurred and March 5 is 2 days later and thus is the end of the lockout period

The Lock Out period is a time post IPO when holders of company stock at the time of the IPO (corporate executives, employees, etc.) cannot sell the stock until the end of the period. There are often conditions that allow for early expiration of the period.

In fact SNOW had an early limited end to a partial lockup that was triggered by a stock price event which allowed the certain holders to sell 25% of their vested positions on Jan 7. This opened up 37.9 million shares for trading on that day.

So … what happened on Jan 7? On Jan 6 SNOW closed down at $268 – probably in part because people expected it to go down on Jan 7. BUT … On Jan 7 it opened at $272 and climbed in the first hour to $290 – and closed that day at $304.

Getting back to your question about what happens on the day the lockup period ends. The general belief is that a stock will drop on that day, but often it does not. I don’t have hard data on this, but my empirical experience is that it goes down a little more often than not.

Will SNOW buck that again on March 5? I don’t know, but based on the past SNOW history, the confidence the employees have in the company, and other factors, I personally think it will be choppy but not a free fall. That said, my crystal ball is in the repair shop at the moment, so who knows.

Class A Stock – per the filing “all outstanding shares of the Company’s Class B common stock … automatically converted into the same number of shares of Class A common stock”. Class B shares, also sometimes called “founders shares” basically gave the holders 10 votes in all stockholder voting activities vs Class A shares (what we own) which give you 1 vote.

Basically they are converting all Class B shares to Class A. Founders often want Class B type shares so that they can keep control of the company. If the founders have 10% of the stock as Class B with 10 votes per share, they have more votes than all the rest of the shares. So they have control of the company. Rarely do they like to give that up.

That is why I am wondering why they did this. The only thought I have is that the Class A shares are easier to sell. So I was wondering if anyone else has thoughts on this item.

Hope this helps,

Jeff

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Whenever RPO is brought up for SNOW, it always seems like a massively misleading figure, intended to pump the company’s growth more than what it will be.

The reason it’s up 200%+ is because SNOW is converting annual contracts to three year contracts.

Viewed in that light it’s still impressive, but not mind blowing any longer since it won’t contribute to future growth (that would be NRR)

Still think SNOW is fully valued and it will take a few earnings to grow into it’s current price.

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Alphalite’s questioning the value of the RPO seems central to the valuation question regarding Snowflake.

My notes from the call:
Half the RPO gained from new customers will be recognized in the second half of the year, because there is six months to migration eg the 19 Fortune 500 added this quarter added no revenue this quarter; but will have used half of what they purchased in the second half of the year. With second year renewals, this is where customers ‘typically going to multi-year contracts’ after recognizing the value proposition.
With the ‘decades’ of data Enterprises have to process, this appears to me like a perpetually larger RPO backlog. That makes The current quarter rev growth a lagging indicator, right.

Also from the call:
resultant outcomes are driving snowflakes evolving Go to Market Strategy and Snowflake is learning what Use-Cases are meaningful in this new Go to market strategy.
Did I hear Snowflake may also be using the knowledge of best use cases as a reason for themselves developing and selling products on Snowflake Marketplace? I haven’t read the transcript yet…

CEO level conversations are at an ‘inflection point’,Blackrock triggered a whole rash of conversations in the Finance vertical and elsewhere.

Long term mid 70’s GM ‘aren’t going to happen this year’.

When all the Aladdin customers to get their data efficiently they’re going to want to be Snowflake customers, sounds like more than a Weak Network Effect right.

My favorite quote from the Confernce Call:
“Data Sharing on Snowflake will lead to innovation transformation.”
(Data Sharing is a product on Snowflake. One which they likely won’t breakout separately, per this CC.)
I believe from these notes alone the story of Snowflakes value proposition is mind-blowing.

Do the numbers support this…

I believe so. I sold 20% of my 9% position to add to OKTA before earnings. :grimacing:

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I don’t mean to imply THIS is the company you want to apply that thinking to, but this is what I think of every time I see someone talk about waiting a bit for timing reasons. Maybe it is just semantics. If you have better ideas and feel more comfortable with money in other places then that is a decision we all must make (buy the best ideas and not try to worry about owning them all).

Rafe

As is often the case I find myself agreeing with you. Last night it looked to me like 235 was a low point and good enough to do some buying in SNOW. Slootman had some very positive things to say about the business in general and about next quarter and next year in particular. I think he implied that the year after would be stronger still. As you say what is it specifically that one waits for.? ( Someone did post that they were waiting for $150. When do you suppose that might happen?)

Anyway I added a ful1 1.5% to my 7% holding in SNOW. I am trying not to wonder whether I should have bought more.

cheers

draj

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Second - The Consumption Business Model – it works for them now and will certainly work for the next X# of years. The concern I have is what happens when valid alternatives come into play. The problem with the consumption model is that customer costs can be uncertain – if use more, you pay more. Most senior management at most companies have budgets to work within - unknown or usage based costs scare them. I have seen this in other industries and over time two things often start to occur when consumption models are in play:
1. the competition starts selling their solution on “known fixed costs” that are lower than what you are paying under the other suppliers consumption model.
2. Management wants to cut costs, so they throttle the consumption to keep costs in line. This opens the door for competition

Jeff

Just an observation.

In the conference call Slootman emphasized that customers of SNOW were able to get a lot more usage out of the data base for a lot less money …more results per unit of consumption (so to speak) Worth keeping this in mind.

cheers

arnie

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Aphalite brings up a good point Re RPO that was clarified in today’s call – though I think my wording would be a bit different.

RPO is basically a “bookings” number and was up over 200% for several reasons:

  1. New “cap one” customers with 1 year contracts
  2. New multi-year contract customers – large enterprise customers tend to prefer multi-year contracts
  3. Migrating to multi-year contracts – their general process has been to start smaller customers with 1 year and then renew with multi-year when they have proven success

So as aphalite stated, the figure can be misleading, but I don’t agree with the statement that “it won’t contribute to future growth” . As WillO mentioned, new customers take approx 6 months to ramp up so there has been little (if any) revenue from the new Q4 customers, that will start to be seen in the 2nd half of next year and will generally grow from there. That is the effect of the consumption model they use. Thus these new customers and their RPO will contribute to the future growth in this new year.

For the customers that have moved from a 1 year to a multi year contract, the RPO for them is similar to the NRR that we see from the more standard business models – since the initial 6 month ramp was completed under the prior contract. The key for the SNOW customer engagement team is to increase usage (consumption) to drive revenue growth in the accounts in order to increase annual revenue from each.

I would be curious to see how the sales and engagement teams are compensated. Are they tied to bookings only – which could be implied in the earnings call with the statement from the CFO “… that’s a bookings number. And obviously, salespeople in Q4 are going to try to maximize their acceleration they’re into.”
Or is there a revenue consumption component too – which would similar to the account add-on business that many account executives strive for in a more standard business model. Compensation drives behavior and I wonder if they are driven to only go after new contracts or if they are also tied to making sure those contracts are consumed.

Multiple searches on line have left me empty handed on this question – and I have a real job to do :wink: So moving on …

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So as aphalite stated, the figure can be misleading, but I don’t agree with the statement that “it won’t contribute to future growth” . As WillO mentioned, new customers take approx 6 months to ramp up so there has been little (if any) revenue from the new Q4 customers, that will start to be seen in the 2nd half of next year and will generally grow from there. That is the effect of the consumption model they use. Thus these new customers and their RPO will contribute to the future growth in this new year.

With respect to RPO Scarpelli noted that 55% of current RPO will be recognized in the next 12 months. The balance evidently in subsequent years. $715 M is about a years revenue at current run rates. SNOW should see revenue from new customers acquired in the 1st half of last year and any renewals plus growth and expansion if any. New business acquired will show up on top of that largely I guess but not entirely as additional RPO next year…

So I surmise that Q1 guidance is quite conservative. And I think the full year guidance is even more so. Add to this gross margin improvements anticipated with scale and the evolution of partnerships discussed at length in the earnings call implies that there is more growth possible than implied in the guidance. Also they expect retention to be in excess of 160%.

cheers

draj

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