In May 2017, The Economist published an article “The world’s most valuable resource is no longer oil, but data” Over time, the Economist was proven right.
Company introduction
Founding story
In 2012, three data warehouse experts, Benoit Dageville, Thierry Cruanes and Marcin Zukowski, founded Snowflake (ticker: SNOW) in California, USA, with the aim of breaking down data silos in organizations.
IPO
On September 17, 2020, Snowflake was successfully listed on the US stock market. It became the largest software company in the history of the United States to go public, surpassing the listing of VMware (ticker: VMW) in 2007; the stock price soared 111.6% on the day of listing.
Buffett participated Snowflake’s IPO
And surprisingly, Buffett, who rarely holds technology stocks, participated in this IPO. In addition to participating in the listing, Buffett also purchased another batch of shares from other investors, placing a total of $570 million in bets at the closing of the listing, holding a total of 15.2% of the shares. It’s a rare bet for Buffett, whose last IPO was Ford Motor (ticker: F).
Company profile
Snowflake is mainly to help customers store and manage big data in the cloud; more precisely, it can provide customers with real-time online huge data storage and analysis operations without limiting the computing environment of a specific cloud provider.
Disrupted technology and business solutions
How is it different from the old technology?
At the technical level, Snowflake leads the industry in proposing the concept of Data-warehouse-as-a-Service (DaaS), which completely separates the storage and calculation of data, thereby reducing the workload; this solves many problems such as easy collapse of the architecture of the uploaded data storage system, difficulty in high-frequency reading and writing, and difficulty in data replication and migration. Snowflake software allows users to analyze and calculate data across multiple cloud platforms, and this technology has now become the mainstream of data warehouse development.
Where is its value?
If you are not a relevant software database technician, you may not see the value of the above two short sentences about the introduction of Snowflake in company profile. But there are a few things in those two sentences above that are important:
- Snowflake is a native vendor of cloud computing, that is, all data is stored in the cloud, which is in line with the general trend of software that is currently developing. Snowflake’s benchmark peer (non-cloud-native data storage and management vendors) is Oracle (ticker: ORCL), the software giant that was on par with Microsoft three decades ago. With my analogy, you can see where the two stand; the only difference is that 30 years from now, cloud computing has changed everything.
- The storeof data is not limited to a specific cloud provider, that is, whether the customer currently uses Amazon, Microsoft, Alphabet, or Alibaba, Snowflake can support it. This is important for large enterprises, because even the best and most powerful features offered can be intimidating to customers if they need to switch platforms.
- Snowflake’s core business is big data. After 20 years of mobile computing and more than 30 years of internet development, all customers have huge amounts of data to process. This is an irreversible trend of the times, and the data generated will only increase in the future. More and more, all customers will need this feature.
- The last point is that Snowflake is currently developing and strengthening, and is the most lucrative part of the entire industry (this part is still in its teenage years in the software industry): data stored in the cloud for customers (these large data that has been stored is called data warehouse) for various analysis, processing, and presentation.
Different business models
Reflected in the business model, Snowflake’s customers do not have to pay a fixed annual fee in advance, and the platform will settle based on the actual consumption of computing and storage by customers during use period. Customers will be charged by how much is used and how much is paid, so that customers can really achieve the purpose of cost control.
Moreover, for the actual statistics of resource consumption, customers can compare the input resources and costs of each link with the traditional model, and truly obtain accurate ROI—this is the most troublesome place for all enterprise information departments.
Customers
Customer preference
According to JPMorgan Chase’s annual survey of 142 CIOs of large corporations that control more than $100 billion in corporate information department budgets, published on June 23, 2022:
- Snowflake soared to “elite territory” in the survey and has a strong reputation among customers.
- Snowflake was No. 1 in install spending intentions, beating out Microsoft (ticker: MSFT), Alphabet (tickers: GOOGL and GOOG), and CrowdStrike (ticker: CRWD).
- Of all the emerging company visions that impressed respondents the most, Snowflake was also the No. 1 company.
How does it compare to major large competitors? The results of a survey in Q3 2020 are as follows:
- Amazon Redshift has 13,060 customers
- Google Big Query has 8,272 customers
- Microsoft Synapse has 6,032 customers
- While Snowflake has only 3,117 customers
How many customers does it has?
According to the information released by Snowflake:
- As of April 2022, nearly two-fifths of Fortune 500 companies are Snowflake customers; and this is continuing to increase.
- As of the first quarter of 2022, there are 184 customers who have brought in at least US$1 million in revenue in the past year.
- At the end of 2021, there are a total of 4239o customers.
Customer loyalty
Snowflake’s net revenue net retention ratio (NDR) was 168%. According to Crunchbase, the median net retention rate for 36 SaaS companies on the market during the same period was 104%. Clearly, Snowflake’s NDR is much higher than the SaaS industry average. It can be seen that customers are very loyal to SaaS products.
Competitors
Big cloud computing platforms
Snowflake has sales agreements with these large demand-side computing platform manufacturers, and they have helped Snowflake sell its products to customers. This may subvert your imagination, because these large on-demand computing platform manufacturers will provide their own existing data storage solutions to attract customers:
- Amazon
- Microsoft
- Alphabet
- Alibaba
- Huawei
- Tencent
Main competitors
Snowflake’s main competitors are not generalists. All of them are large-scale manufacturers of technology software, including:
- Teradata (ticker: TDC)
- Oracle
- IBM (ticker: IBM)
- SAP (ticker: SAP)
Smaller startups
In addition to these big old companies, Snowflake’s competitors include the following startup software companies:
- Cloudera (ticker: CLDR)
- Databricks
- Panoply
- Vertica
- Qubole
- Pivotal Greenplum (ticker: VMW)
- Rubrik
- Hadoop HDFS
- Xplenty
- Cloudian
- Sisense
Open source platforms
Vendors of open source platforms, including:
- Altinity Clickhouse
- Greenplum Database
Business performance and share price
How is the business performing?
| Year 2021 | Snowflake | Salesforce | Microsoft |
| Revenue | 1,219.3 million (+105.91%) | 26,492 million (+24.66%) | 168,088 million (+17.53%) |
| Gross margin | 62.4% | 73.48% | 68.93% |
| Operating margin | (715) million | 2.27% | 41.59% |
| Net margin | (715) million | 5.45% | 36.45% |
Stock valuation
| Index | Snowflake | Salesforce | Microsoft |
| Share price | 143.11 | 166.03 | 242.26 |
| Market capitalization | 45.523 billion | 165.2 billion | 1,812 billion |
| P/E | 0 | 164.06 | 25.29 |
| P/S | 27.59 | 5.78 | 9.91 |
| Dividend yield | 0 | 0% | 0.98% |
How does it perform in current bear market?
Product revenue in the first quarter of 2022 was US$394 million, an annual increase of 84%, and the gross profit margin of the product was 72%, compared with 66% in the same period last year.
Year-on-year customer growth in the first quarter was 40%, with more than 6,300 customers as of April. Its net revenue net retention ratio improved to 174% from 168% in the first quarter of fiscal 2022, and it’s clear that customers still love Snowflake’s products. Net revenue retention is an important metric for software companies because it measures how much revenue grows after losing customers.
Another important metric, remaining performance obligation (RPO) performance, Snowflake ended the first quarter with a remaining performance obligation of $2.6 billion, up 82% year over year.
I am the author of the original text, the abridged version of this article was originally published in Smart monthly magazine.
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