Snowflake (SNOW) is creating a more efficient cloud. Its cloud-agnostic, data warehouse as-a-service is integrated with Alphabet's Google, Amazon, and Microsoft and is processing more than 777 million queries each day, explains Simon Erickson, founder and lead advisor at 7investing.
Being cloud agnostic is important. Snowflake sits a layer above the cloud titans, which allows customers to seamlessly undertake multi-cloud strategies with more than one provider. This gives developers much more flexibility and breaks down the limitations of traditional data silos.
Furthermore, I believe there is a natural "winner-take-all" dynamic at play in this space. If Snowflake can become deeply embedded in its customers' process, they won't really need a second vendor that provides a similar (and likely inferior) offering. In other words, the faster Snowflake grows, the more difficult it becomes to displace.
As such, its outsized growth rates and excellent customer retention rates are important parts of my investing thesis.
Here's a quick look at its current growth rates, from its most recent fourth quarter results:
- Product revenue grew 116% to $178 million
- The number of unique customers grew 73% to 4,139
- Average revenue per customer was approximately $43,000. This equates to a 12-month run-rate of $172,000.
Snowflake is also doing a great job at deriving more revenue from its existing customers:
- Net Revenue Retention was 168%, meaning existing customers are spending an average of 68% more today than then did in the fourth quarter of last year.
- Remaining Performance Obligations increased 213% to $1.3 billion. These are the credits purchased by customers for future computing needs that haven't yet been used or recognized as sales.
I'm very impressed with these operating metrics. At its current run-rate, the $1.3 billion of RPO represents nearly two years' worth of future revenue that is already locked-and-loaded.
One common critique of Snowflake is that it's an overvalued company. But I believe its high Revenue Retention Rate (which is based upon actual usage) and high level of visibility into its future revenue (through the Remaining Performance Obligations) will continue to install a lot of investor confidence.
That should allow the company to sell at a market premium for quite some time into the foreseeable future.
There are two other things worth briefly mentioning. Firstly, Snowflake's insiders didn't dump shares after its lockup expiration in March. That means its VC supporters appear to be sticking with it for the longer-term.
And secondly, world-famous investor Warren Buffett even invested a massive 15% stake in Snowflake late last year. Buffett has notoriously avoided tech, so his investment in Snowflake could be a huge sign of validation.
With a highly ambitious leadership team, an extremely fast-growing market, and incredible operating metrics, Snowflake is an excellent choice for forward-thinking investors with a high tolerance for risk and volatility.