Bear case: How much success is already priced in?
Jamie Louko: There are lots of reasons to believe that Snowflake could see rapid adoption from here. As Keith mentioned, this company is very innovative and has seen astounding adoption, and the future looks very bright. However, a lot of Snowflake’s future success could already be priced into the stock.
Snowflake believes it could achieve a 25% adjusted free cash flow margin and $10 billion in annual revenue by its 2029 fiscal year (or calendar year 2028). That would imply $2.5 billion in annual free cash flow by fiscal 2029.
Considering the company's current market cap is $55.4 billion, meaning Snowflake is trading at 22.2 times fiscal year 2029 free cash flow -- an absurdly high valuation. Comparatively, other tech stocks like Apple (AAPL -1.14%) and Alphabet (GOOG -0.63%) (GOOGL -0.70%) are trading around 25 times current free cash flow.
What does that mean for Snowflake? If the company achieves these growth projections and in 2028 it trades at 22.2 times current free cash flow (all else staying equal), the stock would return 0% from today. In other words, investors are already pricing in extreme success for Snowflake, and even if it does achieve its adjusted free cash flow projection, there’s the potential for the stock to stay flat for the next six years.
To make any sort of return on investment in Snowflake over the next six years, the company would either have to blow its current (and already ambitious) growth projections out of the water or trade at a substantial premium in the fiscal year 2029, both of which should not be expected.
