Snowflake - Gary Alexander's new take

I’ve mentioned how Morningside, which always felt that SNOW was massively overvalued, now feels it’s massively undervalued.

If you need any more proof that our stocks are oversold, now here’s Gary Alexander, the prototype value investor on Seeking Alpha, who now rates SNOW, the prototype overvalued stock, as a “Buy” in a public Seeking Alpha article. Here’s a small excerpt.


To me, here are the key reasons to be bullish on Snowflake:

Humongous growth rates. If you needed proof that Snowflake’s market is a massive one, you only need to look at the company’s top-line growth rate. Even at a ~$2 billion annual revenue scale, the company is still managing to grow at a ~2x y/y pace. That signifies that Snowflake is nowhere near the saturation point, and that there are still plenty of customers left to go - large and small.

Large TAM. More to the point above, Snowflake estimates its overall cloud data platform TAM at $90 billion, suggesting that at its current scale, Snowflake is only single-digit percentage penetrated into this market.

Consumption-based revenue model. Snowflake adamantly declares that it is not a SaaS company. It charges its customers based on data usage, and this means that as data volumes grow, Snowflake grows as well. Snowflake boasts net revenue retention rates above 170%, which is an insanely high number far above most other software companies (which tend to be in the ~110-120% range). Snowflake grows not only by adding new customers, but by expanding significantly within the existing customer base.

Profitable bones. Snowflake’s ~70% pro forma gross margins have allowed the company to significantly scale up its profitability as it grows substantially larger. In FY22, the company achieved a -3% pro forma operating margin, which is almost unheard of for a company still growing at a >2x y/y pace.

Forget the “Rule of 40” - Snowflake is closer to a “Rule of 100”, and is in a class of its own.

Valuation checkup Of course, Snowflake isn’t cheap - even after the recent crush in its share price. But the good news is, it’s cheaper now than it ever has been.