SNOW is a 2% position for me. But I wanted to focus on our (the board’s) expectations for the company.
What do “we” think revenue will do? What do we think margins will be? What do we think profit will be?
As a starter, they stated in the conference call:
“In advance of our Investor Day, I would like to update our fiscal year 2029 targets. For fiscal year 2029, we are reiterating our target for product revenue of $10 billion, growing 30% year-over-year. We are increasing our margin targets and now expect on a non-GAAP basis approximately 78% product gross margin, 20% operating margin and 25% adjusted free cash flow margin.”
They’ve just reported Q1 F2023. So thats 7 years to get to $10B in revenue at a 20% operating margin. Starting at TTM product revenue of $1.3B, maybe fiscal year growth looks something like:
And product revenue therefore looks like:
to match what management have told us they’re targeting.
With a 20% (non-GAAP) operating margin, so roughly $2.1B in operating dollars.
If we ignore the non-GAAP, and assume taxes are zero because of previous losses, let’s take that $2.1B and call it net profit. Let’s also ignore (holds nose and closes mouth) their stock-based compensation.
SNOWs current EV is $38.2B. If we want a 15% CAGR (my minimum goal) over 7 years, that EV will be
38.246*(1.15^7) = $102B.
So that suggests our EV/S would need 10x to hit my minimum and PE would be 50 (using EV instead of market cap and ignoring taxes etc).
Is this what “we” (as a board) are expecting? More? Less? Higher 10x multiplier? More profit?
The other question is: Are there better stocks that are likely to hit my minimum with less risk? (SBC ugh. Sales and marketing spend ugh).
My big concerns with SNOW are:
- Massive S&M spend.
- Massive stock-based compensation (40% of revenue).
- Possibly cyclical as customers spending waxes and wanes with economy.