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
- 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:
- the competition starts selling their solution on “known fixed costs” that are lower than what you are paying under the other suppliers consumption model.
- 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.