My Notes…
SNOW Q 2 FY 23 Earnings Call: Analyst Q/A
CEO, Frank Slootman
CFO, Mike Scarpelli
SVP Product Innovation, Christian Kleinerman
Q Sequential growth in product revenue is nearly 2X what it was in Q1. Are you seeing many customers analyze at higher levels?
A In general, SNOW gets prioritized fairly high in the enterprise. Customers have picked up the scent of the opportunity for them in pharma and in financial services, etc. Lots of urgency of advancing into the cloud. This is not an expense that customers will casually cut back on because it’s so valuable.
CFO said this is a consumption model and not a SaaS model. Can’t just do a q/q comparison. By and large, most of their customers are still ramping up and they expect this to continue.
Q Q3 guide re: 8% seasonal growth. Looking back this looks rather conservative.
A Nothing has changed in their guidance since the company started. There are uncertainties w/ Macro and the guidance reflects this. Last Q2 is a bad y/y to compare against since it was unusually high.
Q Pricing differences when using different cloud providers?
A Snowflake is more expensive on cloud providers that do not use as much SNOW. 80% of their customers run in AWS, 18% Azure and 2% Google.
Q Looking at the environment, lots of people thinking about optimizations. Looking at how much will be consumed in the next 12 months. There’s a mass differential. What’s driving the mass increase you have in consumption. What are the dynamics that were made in the qtr.
A They will continue to do optimizations, so we can make SNOW cheaper for their customers, so they do think the current CRPO will come down to the low 50’s where they have historically been. We expect there will be significant renewals in their contracts later this year. Revenue consumption is the metric the CFO looks at because they’re a consumption model business and not a SaaS.
Q What do you see in your consumption model for customers?
A It’s quite attractive for consumers to have a consumption model so they can throttle up or down how much they consume, which is something they could not do if SNOW were a SaaS model. New customers generally start very small and it takes them 9 months before they begin to really consume. They will save money using SNOW vs. what they’ve done before they used SNOW.
Q GSI partner feedback. What are they telling you about re: making greater investments in SNOW?
A Conference was an extraordinary display of our ecosystem. It’s a very purposeful choice to try to create maximum choice so customers have choices and don’t have to “Buy all things Snowflake.”
Data re: GSI’s have done north of $550M. Top 3 GSI’s are consuming around $320M. 1% was on- demand and 2% was re-sellers, and the remainder was consumption model agreements.
Q Should we expect significant increases in the next qtr or two qtrs.?
A Yes, but I’m not going to guide to it per the CFO. “I’m never going to guide to RPO.”
Q Europe status?
A Key verticals is how you win business over there. We’re actually feeling good about the progress in Europe with big names in the key verticals. Not feeling a lot of macro headwinds in Europe.
Q NRR reducing w/ bigger customers?
A No. SNOW’s top customers continue to grow.
Q Data Bricks Comparrison?
A SNOW is a far more strategic choice than being a tool in the lake like Databricks. DNA/culture as a company are different and they have different customer types using different tools. Both companies have lived side by side playing different roles. SNOW’s approach to simplicity to use their product is a true differentiator vs. Databricks.
Q Headcount growth in sales has exceeded 50%. Where are you focusing these investments?
A 1st half of the year is always largest hiring. Direct sales and sales engineers are being added into. It’s about a 6 month time period to ramp. Bigger verticals can take up to a year to ramp.
Q Migrating customers is 60% of your business. What are you seeing out of your pipeline to migrate out of legacy services?
A They’re going to get left behind if you don’t get on board. Frank sees increased growth.
Q Stable edges growth?
A Lots of people are pre-occupied with the migration, people want to get their core business moved over before they get into executing on bigger things. The data cloud is critical, otherwise companies will have to silo their work and the new insights and abilities available are only available on the cloud. You’ll frustrate your data science team and miss out on the promise that is now in front of us.
Q Record number of million $ customers. Correlation w/ data sharing and stable edges?
A Million dollar accounts can be multiple years in the making. Every industry has its own data networks and reasons. The need to share data is critical. SNOW has become the defacto platform for financial services companies. We have 510 global 2000 companies and the average spend has gone up from $1,050 to $1,250 since last quarter. We expect these larger enterprises to continue to increase their use like this in the future.
Q Color RE: SNOW’s investments?
A SNOW continues to invest in the building of headcount, which drives R&D and sales and this is where they are investing in an adequate fashion. They will continue to do so y/y.
Q Big verticals and what are they?
A Financial services is about 21% and closely behind that is media and then technology and then medical and retail CPG. These are very large users w/ stable edges. We continue to land big accounts in these verticals.
Q Lots of companies are reducing their guide, and how are you doing this?
A Some SaaS may be saturated. SNOW as a consumption business is not. We’re growing it.
Q Size of markets?
A SNOW started out in workload modernization by taking workloads to the cloud. This really helps customers to reliably deliver data to their customers. Customers have historically struggled with this. 9 of 10 conversations w/ customers are about specific problems. In pharma, if we can help take 1 year off their clinical trials, that’s a lot of $$. We see broadening of who they’re talking with to solve problems with each customer. Snowflake for data applications is really taking off. SNOW has become defacto in building whole businesses on top of SNOW. Workplace modernization is no longer their mainstay, the applications for SNOW have exploded significantly.
Q What is the risk that 6-12 months from now we’ll see a slowdown at SNOW.
A All 600 CAP 1 customers who recently signed up w SNOW will start increasing their usage. Frank thinks that macro nervousness is unfounded for SNOW. Much better to be in an elastic model as with SNOW.
Q Snowpark and Python support as well as Apache. When will that start to produce consumption.
A Largest customers have put pressure on NOW to declare these things generally available GA. Meaningful contribution will happen next year.
Q Optimizations: Any new assumptions?
A No changes to their assumptions. Always looking for a way to create value and performance for their customers.
Q Types of workloads at lower price points?
A Seeing a lot of lower latency use cases due to better economics and seeing a lot of data migrations due to the price and performance.
Additional remarks:
Stable edges grew 112% year over year.
Streamlet bridges the gap between data scientists and corporate users
Applica, a machine learning company was acquired by SNOW.
78% RPO growth y/y and this is a 79% increase from 1 year ago
71% Net Revenue Retention growth y/y
Added 12 new global 2000 customers and we believe these customers will become their top customers.
Not seeing sales soften now or in the future. The largest organizations in the world continue to increase their use of snowflake.
Margins for product is 79%
Guidance for Q3 is 63% revenue growth
Applica: Adding new employees for this acquisition
Added nearly 1,000 net new employees and our long-term opportunity is greater than it’s ever been.
Thank you to all who make this board the unique venue that it is for crowdsourcing investment discussions, information and perspectives.
sjo