And not that it is is needed, but even the meager (<3%) dilution forecasted for FY23 is in large part due to the Streamlit acquisition, which will likely close in FY23 and will be 80% financed by new equity. On an $800M sticker price, depending on the closing date, this would be around ~3M new shares, which is certainly baked into that 360M fully diluted share forecast.
They also said on the call, “This will help us further manage dilution, which has already been running below 1% year on year on a fully diluted basis.” Any insinuation that SNOW is dilutive is so misleading that it would more be accurately characterized as a lie.
After listening to the call, the most standout elements to me were:
Good
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24% sequential increase (184 from 148) in large customers(>$1M TTM contract value). And this, “based upon the ones that are just on the cusp of $1 million, that number will continue to increase.”
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Adj. FCF margin of 27%. SNOW’s rule of 40 is 129. And CFO said to expect “outsized” FCF in Q1. If 27% is what we got, then what dafuq is “outsized”?! Disgusting.
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Product (which is 93% of revs) GM at 75%, up YoY from 70%.
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18 months of RPO on the books. They’ll never miss on top line.
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Best for last. 106% increase in bookings, for $1.2 Billion in new bookings in the quarter. In one quarter they booked new contracts equal to the entire TTM of revenue!
Good/Bad
- The insane 178% NRR but the guidance that this will fall to 150%-170% for FY23 due to data compression efficiencies (10-20% depending on customer, said the CFO). However, my read from the call is that the drop in NRR to 150-170% is a valley rather than a trend, as the data compression efficiencies take hold. In fact, they said as much. As this change is expecting to bring in ~$60m in new data loads while realizing ~$160m in customer efficiencies—for a net rev loss of $97m.
This is the best possible reason to have a revenue slowdown—-they’re making customer’s lives better/cheaper, and pulling in vastly more business. When this goes apples/apples in FY24, the compression will be reflected and I expect NRR will reverse higher.
Valuation
At one point after hours SNOW touched a 23x forward EV/S. The guide for 67% product growth for the coming year will probably come in around 80% or higher. In fact, they said that the amount of current RPO they expect to recognize as revenue over the next 12 months will rise 85% from last year, so I think 80-85% top line this FY is essentially the base case.
You know what happens when a share price gets cut in half whilst the revenue doubles? The P/S drops by 75%. You know what happens when FCF is egregious and there’s $5B on the balance sheet? The EV/S gets cuts by 80%!
That’s exactly what we have in SNOW.
In a year’s time it’s conceivable SNOW is sitting on an EV/FCF of 35x with a net retention rate still well above 150% (nevermind total rev growth, which’ll be much higher).
This one seems like slow pitch softball. Yeah going from 100% to 80% growth in one year sounds like CrowdStrike 2.0, but the retention rate is so damn high, with a clear explanation on the rev growth slowdown, I suspect growth durability in FY24 and beyond will be tremendous.
Eric Przybylski, CPA