This Snowflake is special
Jamie Louko (Snowflake): One of the most exciting spaces to invest in for the long haul is data storage and analysis. Snowflake estimates that, by the calendar year 2026, the data warehouse and storage industry alone could be worth $173 billion. Snowflake is operating in this industry, helping businesses store and analyze data across multiple different systems and cloud platforms.
Cloud data storage is fragmented, making it hard for businesses to make actionable insights from their data. Snowflake, however, enables customers to bring together this data and analyze it jointly. This unique aspect of Snowflake’s business had been one of the main reasons for its stellar success: Revenue for the company soared 67% year over year in fiscal Q3 (which ended Oct. 31, 2022) to $557 million.
Customers are also rapidly expanding how much they rely on Snowflake. The company’s remaining performance obligations -- agreements from customers to spend money on Snowflake in the future -- shot 66% higher to $3 billion in Q3. Additionally, the company’s net retention rate was 165% during the same period. This has fallen as the economy has worsened in 2022, but it still represents an incredibly high retention rate.
Over the past year, the company’s free cash flow has risen a staggering 622% to $65 million, representing a margin of 12% in Q3. The company isn’t done yet, as it has goals to achieve an adjusted free cash flow margin of 21% this fiscal year. With this much cash coming into the business, the company can invest in product development to increase the stickiness of its tools.
The biggest concern for Snowflake has been its valuation. The stock has always been valued at a high multiple, but this has come down substantially. Now, Snowflake trades at 23 times sales. This is still a high multiple, but it’s the company’s lowest valuation ever as a public company. Therefore, now could be the right time to buy Snowflake in a diversified portfolio and hold it for the long haul.
