The big $SNOW secret

[FinallyFoolin]

Cliff notes: The Snowflake business is still growing at triple digits.

Overall, I was very happy with SNOW’s results and especially their future. I had one small thing bugging me about this past quarter so reached out to their investor relations to get a better understanding. I figured it’d be an email exchange, but to my surprise, the scheduled a Zoom meeting with me. Me, just a retail investor… I had that call a couple days ago and it completely cleared my little concerns and gave me a better, slightly different idea on how to look at their earnings from Q to Q. And to Saul’s credit, a lot of that is kinda built into a lot of his comments about looking overall at the company and not diving too deep into metric x or metric y.

As many of you have seen, I follow the Q to Q guidance & apply historical beat numbers. What was eating at me is that all their past beats have been at least 6%, capped off with 2 q’s ago at 9.65%. (I calculate my beat numbers based on top number given in their guidance). This past quarter was just a 2.74% beat. I understood 2M from the scheduling performance improvement and an additional amount (they told me 2M) from less active user (the 30% subset) usage thru parts of January. However, even applying that didn’t seem to add up to what would be expected. We all know they say 5-7% beats are BIG beats for them; which is great, but their history has been 6% or higher. Taking into account this 4M, I’m still about 8M from what I was expecting (note, my expectations are not to sell or not sell, but just what I’m thinking they’ll come in at).

The next piece of information I received was something someone else alluded to. The previous quarter was a much bigger beat. If y’all recall, they were disappointed on that call that they had beaten by so much. Well, THAT is the impact of it. When I look at my QoQ for this recently reported quarter, it shows 75% but really, it needs to be combined with the quarter before that. The reason for this is that there are many factors that can come to play to accelerate usage over and above expected. It just so happened that many of those factors occurred in the 2 q’s ago period. If those numbers were smoothed out then this past quarter is really still a TRIPLE digit grower both in YoY and QoQ (remember my post a few days ago on the different usage models. The usage model for SNOW is not as steady of a line as the one of DDOG). Thinking about this a bit deeper, that means the quarter that will lap the big beat Q might lag in the headline YoY number but the following quarter will look like acceleration; although the BUSINESS growth is much more steady than these numbers indicate.

This brings us to looking into the future for Snowflake; which is, after all, much more important. They guided for and will likely come in $$-wise around 93% YoY & 75% aQoQ next quarter. HOWEVER, if we apply the previous, I’ll call it “pricing” model (not saving customers money), then we are back to triple digits both YoY AND aQoQ.

THIS IS THE BIG SECRET. The Snowflake business is still growing at TRIPLE DIGITS! I think most analysts are expecting some slight deceleration, and in the top line numbers, that might happen over the next few quarters. HOWEVER, once we lap this, those numbers will either ACCELERATE back to triples or settle into 90s for a while longer.

Growing triple digits at this scale!

[Smorgasbord1]

As many of you have seen, I follow the Q to Q guidance & apply historical beat numbers. What was eating at me is that all their past beats have been at least 6%, capped off with 2 q’s ago at 9.65%. (I calculate my beat numbers based on top number given in their guidance). This past quarter was just a 2.74% beat

Ugh, I thought we had put Guidance-Beaterism to bed here. To quote from @PoleekoCowboy’s recent post (https://discussion.fool.com/snowflake-the-dreaded-full-year-guid… ) with the subject “Snowflake & the Dreaded Full Year Guidance Game”:

I typically espouse NOT paying too much attention to a company’s guidance and I instead focus on the “cold hard numbers” (to quote my good friend Ethan123) that the company actually puts up each quarter. There is a very real game that is played between the management of every public company and the analysts that follow them, in which every company is expected not to just meet the guidance they give themselves, but to also beat it by a certain amount. Analysts (and investors) then try to predict how much the company will beat their own number by, of course… which is all something of a self-fulfilling, interactive and iterative process over multiple individual quarters to get to the full year (annual) guidance that can baffle and befuddle even the cleverest when all said and done and result in more than a few confounded investors.

And this is in addition to Saul re-emphasizing @luciuse’s words (https://discussion.fool.com/luciuse39s-post-83520-seems-brillian… )
These companies are growing at breath-taking speeds, yet on top of that enormous growth we’re expecting them to know one quarter ahead EXACTLY by how much they’ll grow next quarter, so they can build the appropriate ‘beat’ into their guidance, and they should grow quarter after quarter by the exact same (or improving) QoQ sequential growth rate. That is asking the impossible, and will invariably lead to a sell-out every other quarter or so.

and tacking on: It doesn’t matter to you that there were a dozen other metrics showing that they are still hitting it out of the ballpark!!! NRR at 178%!!! RPO up 99%, and more than seven times this quarter’s revenue!!! Million dollar customers up 24% from 148 to 184, sequentially!!! Etc, etc, etc. (https://discussion.fool.com/luciuse39s-post-83520-seems-brillian… )

So while it’s great that talking to SNOW IR was helpful in overcoming Guidance-Beaterism to see the overall, larger picture, one shouldn’t have to do that. Not only should one not be playing the Wall St guidance game, one should be looking at a number of metrics.

Meanwhile, RIVN drops the actual cold hard number that they’re only going to produce 25,000 vehicles in 2022 instead of the 40,000 they had anticipated/promised - and the stock drops only 7%. What a world.

[EdGrey]

“RIVN drops the actual cold hard number that they’re only going to produce 25,000 vehicles in 2022”

My guess is that cars are more tangible and understandable than a category like “cloud services,” and “electric cars” are the “coming thing,” even though many new EV makers will bite the dust in the next few years, no matter how famous they may be now. And that, for the time being, for many investors, overrides the cold hard numbers. Until “cloud” becomes a thing again.