Before talking about the positive side of the earning call, let’s pause here a little bit. Isn’t this very similar to the situation of Datadog in 20Q2? At that time, because of businesses cutting IT budgets, the customers of Datadog did a lot of optimization work to reduce the total number of machines they need for the cloud workloads. What’s the same between that optimization and Snowflake’s current one is that both optimizations are one-off and will only affect the QoQ revenue growth of the quarter when the optimization happens. And of course, both optimizations are beneficial for their customers, though Datadog’s was driven by its customs and Snowflake’s was driven by Snowflake.
In my opinion, this is a great observation and one I’m considering myself. These optimization costs might create a one-time step down in SNOW’s revenue but don’t necessarily change the slope of the overall trend. However, we now need to weigh management’s new 6 month lag in workload transfers with the existing 9-12 customer ramping lag. That does complicate things a bit.
In the DDOG example, that step down created headline growth headwinds until the slope came back around to the first affected quarter (87%, 68%, 61%, 56%, 51%, 67%). Kudos to the board for identifying that very early with DDOG. However, it’s fair to point out was also a period where DDOG’s stock languished while waiting for the trend to become proven and obvious to everyone else. I’m wondering just how much of a headline drag that might create for SNOW over the next year, particularly against the surprise Q3 we just had.
Each of us individually must decide what to do here, but I thought that was worth pointing out. Still mulling it over.