Snowflake’s gross margin has been trending up as it scales. This was touched upon in last week’s earnings call, and management is targeting mid 70% gross margins over time.
Raimo Lenschow
Okay. Perfect. Hey. Thank you. Again, Mike, on the gross margins, I mean, we have seen the progress this year and you gave us guidance. Just talk a little bit about the drivers for the gross margin improvement we are going to expect in the coming year and what it is – like is it more the contracts with the cloud providers or what’s driving it going forward and what led to do for you to reach the long-term goals? Thank you.
Mike Scarpelli
Yeah. I would say, the contracts with the cloud provider started kicking in Q3 and we had the full benefit in Q4. I don’t anticipate renegotiating our cloud contracts next year. We may be in a situation at the end of the year, but I am not expecting that.
It’s really driven by getting more scale within our existing deployments. We have a number of deployments where we are not at scale and we see those ramping right now. As an example, like, Japan. Japan has been running at a negative gross margin, because we just don’t have very many customers but we are starting to ramp there that that will turn around and that’s just one example. We are in 20 deployments around the world and think of a deployment as a data center out places.
But also as we move higher up into larger enterprises they tend to buy our higher addition our business critical. Yes, those big customers require more discounting, but the margin – the contribution margin from those higher SKUs more than offset that discounting to drive gross margin, which gives us the confidence that we will get to those mid-70s, it’s not going to happen next year, but we see that continued gradual improvement.
https://seekingalpha.com/article/4411279-snowflake-inc-s-sno…
Mike