Is Snowflake (NYSE: SNOW) Worth Investing? Here Are My 5 Takeaways
17 September 2020
Snowflake does cloud computing that implements a variable pricing model, which can be at times more attractive than fixed packages offered by more prominent competitors.
The market for cloud computing is enormous and expanding.
It is roughly a $55 billion market right now.
But is it worth investing? Here Are My 5 Takeaways
1. Warren Buffett (or Berkshire Hathaway) Backs It
Warren Buffett has a piece in Snowflake IPO, dubbed the biggest software offering in history.
Berkshire Hathaway bought $250 million in Snowflake stock in a private placement at an IPO price of $120 per share. They also purchased a further 4 m shares at the IPO price from Snowflake’s previous CEO Robert Muglia.
In total, Berkshire Hathway has a $735 m stake in Snowflake at IPO price.
However, we will not know until a later date if this decision is by Warren Buffett himself or one of his lieutenants, Ted Weschler or Todd Combs – which have discretionary portfolio management of around $14 b each.
It is also interesting to note that Snowflake CEO pursued Berkshire Hathaway as an investor to “raise the stature of Snowflake as a brand” He also said “You could see today that we made a good dent in that. A lot more people know who Snowflake is today.”
2. Snowflake Share Price More Than Doubled in Their NYSE Debut
Snowflake is also now worth five times it was then in it’s February valuation.
The company originally proposed a price for the IPO in the range of between $75-$85 per share before bumping it up to $120. As of today, it has more than doubled to $253.93 as of the close.
3. They Have 3000+ Customer With 56 $1M+ Customers
Based on Snowflake’s investor relations website, Snowflake currently has over 3000 customers.
56 of them give them greater than $1 million in trailing 12-month product revenue contribution as of July 31, 2020.
Of course, as of today’s data, that is not much revenue and not many customers relative to its valuations.
4. Snowflake Revenues Grew 175% in 2019
In 2019, Snowflake revenue grew from $96.7 m to $264.7 m.
The growth trajectory of their revenue also seems to still be continuing in 2020.
It is evident that the cloud computing market is booming – especially during the COVID-19 pandemic where the whole digitalization process just sped up.
5. Snowflake CEO Has Great Track Record
Snowflake’s current CEO is Frank Slootman.
He is a famous veteran in the tech industry known for his successes in selling Data Domain as CEO to EMC for $2.4 b.
And he was also the CEO of Service Now where he increased the revenue from less than $100 m to $1.5 b annually under his helm.
Based on his past track record, he is a wonderful CEO with great foresight and capabilities.
He seems to also be someone with a long-term time horizon too when he mentioned that he wants Snowflake to attract major institutional investors as shareholders—funds or individuals that could buy billion-dollar positions and would likely hold their shares for a long time.
I believe that Snowflake is run by a great CEO with solid business prospects.
However, even Slootman, an experienced CEO of a public company, says about the stock doubling as “the difference between the frothy, opportunistic retail side of the market place and the long-term shareholders.” and he also said that we should not get too distracted by what we see on CNBC.
Personally, I will only look at Snowflake more in detail when the retail investors are no longer so excited about Snowflake.
Because when everyone is way too excited about something, I think it is a sign that I should not be.
Even if it goes further up, it is okay.
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Chris Lee Susanto
Founder of the value investing blog Re-ThinkWealth.com (if you type “value investing blog” in Google, his blog is likely the first one). Being a full-time investor himself, Chris knows that he did not beat the S&P 500 return so far (as of the time of this writing) by listening to stock tips. So, when he teaches, he also doesn’t believe in giving stock tips as it is not sustainable for you in the long run. He will teach you how to make your own intelligent decisions with his 4M1S framework. Feel free to also join his free investment telegram channel here.
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