Under the Spotlight Wall St: Snowflake Inc. (SNOW)
They say every snowflake is unique, but cloud computing firm Snowflake has to work hard to stand out from its competition. Let’s take a close look at it Under the Spotlight.
One of the first pure-play cloud computing companies to be listed on the stock market, Snowflake, Inc. ($SNOW) is a cloud-based data warehousing company founded in 2012 by a group of experienced technology executives.
The company's flagship product is a data warehousing platform that enables users to store, manage and analyse large amounts of structured and semi-structured data in the cloud. Its key feature is the ability to scale quickly and efficiently. While traditional data warehousing solutions require users to purchase and maintain expensive hardware and software, Snowflake's uses a cloud-based architecture that allows users to scale up or down as needed. This means that users only pay for the computing resources they use: a cost-effective solution for businesses of all sizes.
In addition to this scalability, Snowflake's platform supports a wide range of data formats, while also integrating seamlessly with other cloud-based applications like Salesforce and Amazon Web Services. This makes it easy for users to combine data from multiple sources and gain insights that would not be possible with other data warehousing solutions.
As businesses collect more and more information, the demand for efficient and scalable solutions that can handle large amounts of data has grown. Snowflake has been able to capitalise on this trend, offering a platform that is both powerful and easy to use.
And this trend shows no signs of slowing, with the company forecasting a whopping US$248b total addressable market by 2026 – US$173b coming from data warehouse and data lakes demand and US$51b for data science and machine learning applications, with data engineering and cybersecurity making up for the rest.
The company currently has around 7,200 customers, a number that’s growing steadily over the last year: between Q3 2021 and Q3 2022, the customer growth rate was 34%. And despite working with a pay-as-you-go system, more affordable for small businesses, some of the company’s customers are enormous companies. 287 of them spend US$1m+ on Snowflake’s data warehouse, with names like Adobe ($ADBE), Western Union ($WU) and Electronic Arts ($EA) among the most famous.
As its user base grows, so does the gross revenue. In Q3 2022, Snowflake grossed US$557m, reporting a 67% growth YoY. To keep up with demand growth, headcount also had to increase, almost doubling from 3,557 in Q3 2021 to 5,547 in Q3 2022. This partly explains why expenses have also been steadily increasing. Right now, sales and marketing expenses are 61% of their revenue, totaling US$287.4m.
Adding in R&D and administrative expenses leads to considerable losses: in FY 2023 (so far), Snowflake reported losses of US$590m, having never reported a single quarter of net profits. And while growth has been substantial, the company still struggles to diversify their revenue sources, as the U.S. makes up for 84% of its income. If Snowflake wants to topple other cloud computing companies, it should strive to expand into other regions. Even ones where it doesn’t usually snow.
This does not constitute financial advice nor a recommendation to invest in the securities listed. The information presented is intended to be of a factual nature only. Past performance is not a reliable indicator of future performance. As always, do your own research and consider seeking financial, legal and taxation advice before investing.