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Snowflake (SNOW): $163.04
Market Cap: $53.69 B
Enterprise Value: $49.22 B
Key Insights
Company profile
Founded in 2012 by Benoit Dageville, Thierry Cruanes, and Marcin Zukowski, Snowflake Inc. provides a cloud-based data platform in the United States and internationally. Its platform offers Data Cloud, which enables customers to consolidate data into a single source of truth to drive meaningful business insights, build data-driven applications, and share data and data products.
Source: Snowflake Investor Presentation
The Berkshire Hathaway Effect
What truly captured my attention with Snowflake was the unexpected move by Berkshire Hathaway. Known for his cautious approach, particularly towards tech companies and red-hot IPOs, Berkshire’s decision to invest in Snowflake before its IPO came as a big surprise. It is unlikely that either Warren Buffett or Charlie Munger picked the investment, and it is probably Ted Weschler or Todd Combs that made this decision.
In Q3 2020, Berkshire Hathaway acquired 6.13 million shares (worth $730 million) at the IPO price of $120 per share, a clear signal of their belief in both Snowflake’s strong valuation and CEO Frank Slootman’s leadership. This endorsement from Berkshire added to the allure of Snowflake for other investors, solidifying its image as a game-changer, not just another tech fad.
The combination of a genuinely strong product, a well-orchestrated hype cycle, and the Berkshire Hathaway validation created a perfect storm of investor attention. This pre-IPO buzz helped Snowflake raise $3.4 billion and achieve a valuation of $33.3 billion. The stock shot up 111% to $245 before it was briefly halted on its first day of trading. It eventually peaked at an intraday high of $405 on November 17, 2021.
Riding the S-Curve: From NOW to SNOW
Frank Slootman isn’t your average CEO!
He had a reputation bordering on a cult following for his ability to propel companies along explosive growth trajectories.
He joined Snowflake in 2019, replacing veteran executive Bob Muglia, and was tasked with leading the company through its IPO the following year. Mr. Slootman saw his CEO role as ‘insanely confrontational’ and was likened to Elon Musk!
This cult-like following was not without merit; his track record of steering companies from the brink of obscurity to the zenith of success speaks volumes. A superstar CEO in the SaaS segment of the tech industry, a large portion of Snowflake’s valuation was undeniably tethered to his leadership.
Mr. Slootman’s leadership style prioritizes focus, execution, and constant improvement. He demands high standards, data-driven decisions, and holds everyone accountable. Intriguingly, he embraces confrontation, calling it “intellectual honesty.” In the Invest like The Best podcast he suggests open communication, even if it leads to conflict. This directness, he believes, is key to overcoming challenges and achieving ambitious goals.
He was a transformative leader at three key companies: Data Domain, ServiceNow, and Snowflake.
2003-2009: At Data Domain, he rescued the struggling company from bankruptcy, secured funding, and drove product development that led to a successful IPO and eventual acquisition. Data Domain successfully went public in 2007 and was eventually acquired by EMC for $2.4 billion in 2009.
2011-2017: He then took ServiceNow (NOW), a niche help-desk provider, and expanded its reach to become a major IT services player, overseeing explosive revenue growth. Under Mr. Slootman’s leadership, ServiceNow went public in 2012 in a successful IPO and grew revenue from under $100 million to over $1.4 billion by the time he left.
2019-2024: Finally, at Snowflake (SNOW), he capitalized on the pre-IPO hype and investor confidence, guiding the high-growth cloud data platform to a massive IPO and record valuation.
As we were doing work on this article, we were struck by the symbolic similarity between the stock symbols of SNOW and NOW — distinguished only by the letter “S”. This subtle distinction reflects the “S-curve” growth trajectory synonymous with high-growth companies, underscoring Mr. Slootman’s knack for steering companies along exponential paths to success. Hockey stick growth is not always sustainable, and it feels like Snowflake started seeing moderate growth as it hit the upper end of its current S curve.
Mr. Slootman also made a questionable move by moving Snowflake’s headquarters out of Silicon Valley. In 2021, both Mr. Slootman and CFO Mike Scarpelli opted to run the tech company remotely from a ranch in Montana.
To see Frank Slootman and Snowflake give up not just on the traditional Bay Area headquarters but on the headquarters entirely was a red flag. The situation reminds us of Boeing (BA) where the company’s CEO, who took over shortly before the pandemic, primarily worked remotely.
Nevertheless, Mr. Slootman’s leadership across the three companies he previously served has yielded a net worth surpassing that of notable figures like Tim Cook and Satya Nadella. He is estimated to be worth approximately $3.7 billion, according to the Bloomberg Billionaires Index. In fact, Fortune reported that at one point, the chief executive was making an astonishing $95 million per month, or about $1.1 billion annually.
On February 28, Frank Slootman retired as Chief Executive Officer of Snowflake. While Mr. Slootman is esteemed as a tech executive, he lacks the founder experience of some peers, with his career predominantly comprising of C-suite roles rather than hands-on product building or founding ventures.
In an interview on CNBC, Mr. Slootman emphasized that his retirement from Snowflake would be his last, underscoring the importance of knowing when to step down and make way for new leadership.
During the earnings call, Mr. Slootman shared
Now, on the topic of the CEO transition. I was brought to Snowflake five years ago to help the company breakout and scale. I wanted to grow the business fast, but not at all costs. It had to be efficient and establish a foundation for long-term growth. I believe the company succeeded on that mission.
With the onslaught of generative AI, Snowflake needs a hard-driving technologist to navigate the challenges the new world represents. Sridhar’s vision for the future and his proven ability to execute at scale made it clear to us as a Board, he is the right executive at the right time to lead Snowflake.
Mr. Ramaswamy, Snowflake’s Senior VP of AI and Co-Founder of Neeva (acquired by Snowflake last year), brings fresh perspective as Snowflake moves into its next growth phase beyond data warehousing.
Spearheading Snowflake’s AI strategy since May 2023, Mr. Ramaswamy led the launch of Snowflake Cortex, a fully managed service simplifying AI usage for all users to drive business value. Before Snowflake, Mr. Ramaswamy led all of Google’s advertising products, playing a key role in the growth of Google’s advertising business from $1.5 billion to over $100 billion.
During the earnings call, Mr. Ramaswamy mentioned,
Generative AI is at the forefront of my customer conversations. This drives renewed emphasis on data strategy in preparation of these new technologies.
Mr. Ramaswamy will be awarded about $100 million in stock awards over the next five years in addition to a $750,000 annual salary, according to a filing. He’ll also get an annual incentive bonus targeted at 100% of his salary.
Valuation
Snowflake, which went public at $120 per share in 2020, had a peak enterprise value of well over $100 billion. Heading into the last earnings report, the stock was trading at approximately $230. However, it dipped to $165 following results that fell below projections and the departure of the CEO.
Currently trading at around $163, the enterprise value is $47.01 billion, and there is $3.85 billion of net cash on the balance sheet.
The company trades at 14.97 forward sales and a forward P/E of 161.74. The company has handily beaten revenue estimates for 14 straight quarters.
Financials (Investor Presentation) (Press Release)
Revenue: Product revenue in Q4 2024 (ended January 2024) totaled $738.1 million, reflecting a year-over-year increase of approximately 33%. Despite experiencing several quarters of growth deceleration, Snowflake maintained stable year-over-year growth rates in Q4. Total revenue for the year was $2.8 billion, up 36% year-over-year.
Adjusted quarterly EPS was 35 cents, up 150% year-over-year. As is often the case with high-growth SaaS companies, GAAP earnings for Q4 were a loss of 51 cents. The company paid out $305.5 million in stock-based compensation (SBC) or more than 39% of its revenue. For the full year, SBC expense was $1.17 billion a big jump from $861 million in fiscal 2023.
Remaining Performance Obligations: The company closed the year with $5.2 billion in remaining performance obligations (RPO), anticipating half of it to convert into revenue within the next year.
Operating Loss: Snowflake’s quarterly operating loss grew in the fourth quarter, rising from $239.8 million a year earlier to $275.5 million.
Net revenue retention: This ratio measures the net revenue retained by a company after factoring any churn it faces. A ratio exceeding 100% indicates that the company is outpacing its churn rate. Snowflake’s NRR stands at 131%; nonetheless, it has consistently decreased over the past eight quarters.
Snowflake anticipates a non-GAAP product gross margin of 76% and also plans to expand its workforce by approximately 1,000 employees this year, including through mergers and acquisitions (M&A).
Guidance
In FY2025, Snowflake’s management projects product revenues of $3.25 billion, indicating a significant slowdown in growth from 38% year-over-year in FY2024 to 22% year-over-year in FY2025.
Future: Snowflake Partners with NVIDIA
On March 18, 2024, Snowflake revealed during NVIDIA GTC, an expanded partnership with NVIDIA, aiming to provide enterprise customers with a robust AI platform, bringing together the full-stack NVIDIA accelerated platform with the trusted data foundation and secure AI of Snowflake’s Data Cloud.
Sridhar Ramaswamy added,
Our partnership with NVIDIA is delivering a secure, scalable and easy-to-use platform for trusted enterprise data. And we take the complexity out of AI, empowering users of all types, regardless of their technical expertise, to quickly and easily realize the benefits of AI.
If you are thinking “doesn’t everyone partner with NVIDIA these days?” you are exactly right.
On the same day, Snowflake competitor Databricks also announced an expanded collaboration and commitment to deeper technical integrations with NVIDIA during the company’s flagship GTC 2024 conference.
Conclusion:
Nearly a decade ago, when I was building a financial model for a SaaS startup in Silicon Valley, I was shocked to see that one of the public companies I was using as a potential comparable was trading at 30 times sales. That overvaluation translated to years of little movement in the stock as it grew into its valuation. Eventually, that stock went on to more than triple, and the revenue CAGR over a nine-year period was 28%. Growth was well over 30% in the first few years and moderated over time to the high teens in recent years.
Snowflake is going through something similar and the big drop in the stock price reflects the lower valuation the market is affording the company now that growth has moderated. The sudden drop in their forecasted year-over-year growth rate implies that this is not just a gradual decline because the law of large numbers kicked in.
In a rapidly evolving technology landscape that is dominated by the promise (and pitfalls) of Large Language Models (LLMs), the company was in need of a leader with a strong technology background to reinvigorate the company. This is what we are currently seeing with the sudden management change at Snowflake but the jury is out on whether the new CEO can pull off what Satya Nadella achieved at Microsoft or Arvind Krishna is in the process of executing at IBM.
Everyone I spoke to about the company before this recent downturn in the stock price felt that Snowflake had a very strong product. Sentiment is often driven by recent price action. As is usually the case, at some point Snowflake will be oversold and will provide an attractive opportunity to patient investors. I am just not convinced we are there yet.
Sudden Departures
CEO
CFO
General Counsel/Chief Legal Officer
Others
Appointments
1. Duke Energy Corp. (DUK): $95.41
On March 15, 2024, Duke Energy Corporation announced that Harry K. Sideris has been appointed as President, effective April 1, 2024.
| MarketCap: $73.60B | Avg. Daily Volume (30 days): 3,360,092 | Revenue (TTM): $28.60B |
| Net Income Margin (TTM): 9.93% | ROE (TTM): 8.48% | Net Debt: $80.39B |
| P/E: 17.58 | Forward P/E: 15.95 | EV/EBIDTA (TTM): 11.82 |
| P/S (TTM): 2.53 | P/B (TTM): 1.56 | 52 Week Range: $81.19 – $98.79 |
2. Nextracker (NXT): $57.58
On March 15, 2024, the Board of Directors of Nextracker appointed Charles “Chuck” Boynton as Chief Financial Officer, effective May 2024.
| MarketCap: $12.61B | Avg. Daily Volume (30 days): 3,339,245 | Revenue (TTM): $2.28B |
| Net Income Margin (TTM): 5.53% | ROE (TTM): 43.85% | Net Cash: $223.06M |
| P/E: 34.99 | Forward P/E: 16.75 | EV/EBIDTA (TTM): 31.73 |
| P/S (TTM): 1.57 | P/B (TTM): 15.50 | 52 Week Range: $29.28 – $62.14 |
3. Restaurant Brands International (QSR): $80.84
On March 14, 2024, Restaurant Brands International announced that the Board has appointed Sami Siddiqui to succeed Matthew Dunnigan as Chief Financial Officer effective immediately.
| MarketCap: $36.14B | Avg. Daily Volume (30 days): 1,538,130 | Revenue (TTM): $7.02B |
| Net Income Margin (TTM): 16.95% | ROE (TTM): 38.19% | Net Debt: $13.33B |
| P/E: 21.49 | Forward P/E: 17.18 | EV/EBIDTA (TTM): 17.41 |
| P/S (TTM): 5.25 | P/B (TTM): 8.84 | 52 Week Range: $60.22 – $82.69 |
4. 3M Co. (MMM): $108.11
On March 8, 2024, the Board of Directors of 3M Company appointed William M. Brown as chief executive officer, effective May 1, 2024.
| MarketCap: $59.75B | Avg. Daily Volume (30 days): 552,700,000 | Revenue (TTM): $32.68B |
| Net Income Margin (TTM): -21.40% | ROE (TTM): -71.08% | Net Debt: $10.96B |
| P/E: N/A | Forward P/E: 11.35 | EV/EBIDTA (TTM): 8.99 |
| P/S (TTM): 1.83 | P/B (TTM): 12.43 | 52 Week Range: $82.65 – $109.10 |
5. Snowflake (SNOW): $163.04
Effective February 27, 2024, Snowflake announced Sridhar Ramaswamy was appointed as Chief Executive Officer of Snowflake Inc.
| MarketCap: $53.69B | Avg. Daily Volume (30 days): 10,463,138 | Revenue (TTM): $2.81B |
| Net Income Margin (TTM): -29.79% | ROE (TTM): -15.72% | Net Cash: $3.85B |
| P/E: N/A | Forward P/E: 161.74 | EV/EBIDTA (TTM): N/A |
| P/S (TTM): 19.05 | P/B (TTM): 10.35 | 52 Week Range: $134.17 – $237.72 |
1. Logitech International S.A. (LOGI): $90.47
On March 17, 2024, Logitech International announced that Charles Boynton resigned as Chief Financial Officer effective May 17, 2024, to pursue another opportunity.
| MarketCap: $13.89B | Avg. Daily Volume (30 days): 468,527 | Revenue (TTM): $4.25B |
| Net Income Margin (TTM): 11.44% | ROE (TTM): 21.85% | Net Cash: $1.33B |
| P/E: 29.35 | Forward P/E: 21.83 | EV/EBIDTA (TTM): 20.54 |
| P/S (TTM): 3.40 | P/B (TTM): 6.39 | 52 Week Range: $51.66 – $96.66 |
2. Nextracker (NXT): $57.58
On March 15, 2024, Nextracker announced Chief Financial Officer David Bennett will step down as Chief Financial Officer and will continue as Chief Accounting Officer, effective May 2024.
| MarketCap: $12.61B | Avg. Daily Volume (30 days): 3,339,245 | Revenue (TTM): $2.28B |
| Net Income Margin (TTM): 5.53% | ROE (TTM): 43.85% | Net Cash: $223.06M |
| P/E: 34.99 | Forward P/E: 16.75 | EV/EBIDTA (TTM): 31.73 |
| P/S (TTM): 1.57 | P/B (TTM): 15.50 | 52 Week Range: $29.28 – $62.14 |
3. Restaurant Brands International (QSR): $80.84
On March 14, 2024, Restaurant Brands International announced that Chief Financial Officer Matthew Dunnigan resigned effective immediately.
| MarketCap: $36.14B | Avg. Daily Volume (30 days): 1,538,130 | Revenue (TTM): $7.02B |
| Net Income Margin (TTM): 16.95% | ROE (TTM): 38.19% | Net Debt: $13.33B |
| P/E: 21.49 | Forward P/E: 17.18 | EV/EBIDTA (TTM): 17.41 |
| P/S (TTM): 5.25 | P/B (TTM): 8.84 | 52 Week Range: $60.22 – $82.69 |
4. Cencora (COR): $241.87
On March 11, 2024, the Board of Directors of Cencora announced President and Chief Executive Officer Steven H. Collis retires from the role of CEO and becomes Executive Chairman effective October 1, 2024.
| MarketCap: $48.20B | Avg. Daily Volume (30 days): 1,231,277 | Revenue (TTM): $271.58B |
| Net Income Margin (TTM): 0.69% | ROE (TTM): N/A | Net Debt: $3.30B |
| P/E: 26.37 | Forward P/E: 18.52 | EV/EBIDTA (TTM): 13.80 |
| P/S (TTM): 0.18 | P/B (TTM): 52.87 | 52 Week Range: $149.43 – $243.83 |
5. 3M Co. (MMM): $108.11
On March 8, 2024, the Board of Directors of 3M Company announced Chief Executive Officer Michael F. Roman resigns effective May 1, 2024, and transitions to the role of Executive Chairman.
| MarketCap: $59.75B | Avg. Daily Volume (30 days): 552,700,000 | Revenue (TTM): $32.68B |
| Net Income Margin (TTM): -21.40% | ROE (TTM): -71.08% | Net Debt: $10.96B |
| P/E: N/A | Forward P/E: 11.35 | EV/EBIDTA (TTM): 8.99 |
| P/S (TTM): 1.83 | P/B (TTM): 12.43 | 52 Week Range: $82.65 – $109.10 |
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Disclaimer: I hold a long position in AESI. Please do your own due diligence before buying or selling any securities mentioned in this article. We do not warrant the completeness or accuracy of the content or data provided in this article.