I trimmed Upstart when it got back to 30% of my portfolio this Friday. I added a little to Monday (now 9.27%) on their 4% pullback on no news and added some to Snowflake (now 8.25%).
After Muji and Peter Offringa’s presented together at Fintwit this week they wrote up why they added to Cloudflare (now being Muji’s largest and Peter owning 23% in his portfolio) and why they both added to their Snowflake positions (Peter now with 16%). One thing Peter wrote reminded me of how the size of a TAM is markedly important when a company is growing as fast as Snowflake and especially if their growth endurance continues anywhere near where it’s been lately. Peter believes Snowflakes TAM will be $1Trillion, based on their Investor Presentation from July 2021.
I remembered when in July I read that for the Cloud Data Platform, Snowflake projected an addressable market of $90B. For the Data Cloud, which includes all data sharing and marketplace use cases, they didn’t set an amount. They simply represented a circle that stated ‘at least 10x the size of the current market opportunity’. Sounds silly to admit this; but, I need to remember to do even the simple math myself.
I went into this with great detail in my Portfolio Summary a couple months ago, regarding why TAM is important to me. I believe Snowflake will again demonstrate near 100% growth Endurance of 100% Revenue Growth.And with this enormous TAM we will see the slope of our favorite part of the technological adoption curve, the hockey stick, grow in both rise and run - Rise being the rate of adoption and the run being the growth into the TAM (If I don’t have that right please correct me). This means their going to need this huge TAM to grow into because their continually growing so fast the the value of this company is going take off upward faster and for longer than any but the rarest of companies.
When I tried to explain Snowflakes drop in RPO last quarter here https://discussion.fool.com/hi-ant-i-felt-the-same-regarding-sto……, Saul asked if RPO is being used by Snowflake customers quicker why doesn’t Revenue growth increase due to this? I don’t attempt to answer Saul’s question, why didn’t quarterly revenue growth increase more than it did. But I do feel that I do have a reasonable answer to why RPO dropped and I added back to Snowflake making it an 8.5% position at this time.
In my attempt to explain, in the above link, the reasoning for lower RPO is supported by Snowflake management when Mark Scarpeli said in the Q2CC Of the $1.5 billion in RPO, we expect approximately 56% to be recognized as revenue in the next 12 months, representing approximately $87 million increase quarter-over-quarter. and add to that what Snowflake CEO, Slootman said on the call, ‘everyone starts at about the same $100,000 contracts.’ To me this means no one is buying more than a two year contract anymore and if you’re using more compute the first year (with the newer focus on larger customers) there’s not going to be much RPO left.
We know that the revenue recognition for these larger customers will impact snowflakes revenue accrual to a greater extent than the smaller companies. I don’t know if their NRR can get higher than 168%. I’m betting that along with the clear shift toward signing larger enterprises these larger customers are eating up more compute the first year than the smaller ones did despite only signing up for the same $100,000 amount, at least somewhat explaining the drop in RPO that is left on the books for the second year, right?
Best,
Jason