Cloud-based data platform Snowflake (SNOW) went public in late 2020 amid a ton of hype, including its rapid growth and backing from Warren Buffett, whose Berkshire Hathaway bought $250 million in shares at the IPO price. The stock went to…
sky-high valuations in its early trading days.
Now, more than a year later, Snowflake continues to execute at a high level, and its shares continue trading at a premium to most stocks on the market. Warren Buffett himself once said that wonderful companies at fair prices are far superior investments to fair companies at wonderful prices.
So where does Snowflake fall on this spectrum, and is it too late for investors to own the stock and still generate strong investment returns? Here’s the information that could help answer these questions.
What does Snowflake do?
The internet continues to penetrate just about every aspect of our lives, and these days every company is a “tech company’ to some degree. Every email, record, transaction, and website click can be recorded, stored, and used to gather insights and make decisions. Now, companies that best use their data have a competitive edge over those that don’t.
But it can be a complex undertaking, and many companies are stuck between the “new and old,” storing data in an isolated way, like many buckets of different shaped pieces with no way to fit them together.
Snowflake’s platform helps fix that, offering companies a unified place to store, manage, and share data. It’s cloud-based, so customers don’t need to worry about physical equipment, software to install, or upgrades to perform. It’s as simple as uploading the data into Snowflake; then, companies can run queries or take advantage of the many integrations Snowflake has with third-party software partners.
Snowflake’s fundamentals justify the hype
Snowflake has so much hype, because it’s putting up growth metrics among the best of any company on the stock market. The business is growing revenue at a triple-figure rate, up 110% year over year in its most recent report for the fiscal 2022 third quarter.
Multiple levers are driving this growth. First, Snowflake keeps growing its customer base, which now totals 5,416 businesses as of Oct. 31 and increased 52% year over year. There are many thousands of publicly-traded companies and millions of businesses globally, so Snowflake is in the early stages of capturing market share. Out of those customers, 148 spent $1 million or more on Snowflake’s platform in the past year, and this cohort of high-value users grew 128%. The company now serves almost half of the Fortune 500.
Customers also spend more with Snowflake once they’re on the platform, which is the secret sauce for sustaining long-term growth. The company’s dollar-based net revenue retention rate, a measure of existing customers’ spending growth, was 173%. In other words…
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