#218: Will the Snow Really Melt?
It’s been one of the most interesting, dramatic three trading sessions for Snowflake (ticker: SNOW), dropping ~22.64% since last Wednesday, as of Monday’s close.
Let’s take a look at:
What is Snowflake?
What happened?
How unusual is this?
What now?
What is Snowflake?
Snowflake is all about “data-as-a-service”, also written as “"Mobilize Data, Apps, and AI” on their website.
In the old days (but even until recent):
Data engineers at corporations had to deal with cost-ineffective data storage solutions. Data warehouses were hosted "on-premises", which meant organizations had to purchase, deploy, and maintain all hardware and software.
This was bad, one reason being this meant that cloud data warehousing was not scalable, took much more time to execute client requests or even internal data projects.
So, Snowflake is moving data to the cloud by:
Providing a scalable and cost effective cloud data warehouse - business can "harness their data without worrying about resource contention".
Offering platforms useful for multiple purposes (data ingestion, business intelligence and analytics, data collaboration, AI, ML, etc.), not to mention that engineers have grown to love it in recent years.
What Happened?
The company released its Form 8-K after market close on 2/28 (Wed), which included its latest quarterly figures and forward-looking guidance on next quarter.
It was not bad at all
Product revenue came in at $738.1M, above the company's previous forecast range of $716M to $721M.
Overall revenue was up 32% from the a year ago and nearly 1.8% higher than Street consensus.
Operating income was $71mm for the quarter, and adjusting operating margin was 9%, noticeably above the company's forecast of 4%.
Some not-so-exciting news
The company projects that product revenue for next quarter will be $745mm ~ $750mm, still up 26% from previous year, but below Street consensus at $768mm.
Also, CEO Frank Slootman announced retirement during the earnings conference call.
How Unusual Is This?
In the last three trading sessions (five calendar days), the stock’s dropped 22.64%.
Snowflake IPO’d in September, 2020 - it hasn’t been around too long in the public markets, so take the plot above with a grain of salt, as it’s only from historical price data of only the last four years.
Even then, if we were to take all five-day percent changes in Snowflake’s stock price since its IPO, a 22.64% drop here is in the .39% percentile - rare, oh so rare. .
What Now?
👉 Ape of Omaha’s Takeaway:
The market may be over-reacting with risk-off, fear-of-uncertainty in terms of the recent sell off.
Frank Slootman appointed Sridhar Ramaswamy, senior VP of AI, as the new CEO.
Slootman will remain chairman of the company.
Things will likely run just as fine. It may require an adjustment period, but the people behind Snowflake’s strong product are not going anywhere, and the momentum in Snowflake’s growth will likely stay supported.
Sure, an analyst at Citi lowered the price target on Snowflake to $240 from $290 (current price as of writing is ~$178)
But, their BUY rating on the stock has remained - $240 or $290, one could say the stock price right now is shockingly under.
Let’s not forget about the market Snowflake’s in - cloud, AI/ML, data - nothing but decadal growth theme here.
Now, the question is whether Snowflake would maintain a strong player in its industry amongst its competitors.
A slightly disappointing guidance on the next quarter (and a surprising CEO’s retirement) are not factors convincing enough to foretell Snowflake’s “demise”.
Snowflake is currently trading at 22.3x sales, it’s hard to call that expensive.
SNOW's traded at ~25.0x sales, on average, in the past three months.
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