Why Snowflake Should Be A Cloud-Computing Winner Over The Next Decade

Why Snowflake Should Be A Cloud-Computing Winner Over The Next Decade

over 2 years ago4 mins

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Summary:

  • Snowflake’s technology is used by nearly a third of the Fortune 500, from Adobe to Twilio, helping fuel stellar customer growth.
  • After a 20% decline from last year’s peak, the shares could be presenting an attractive entry point.

Tell us about yourself, Pierre

I’m Pierre Rognion, a user experience consultant.

What’s the pitch?

A mid- to long- term (~10 year) investment in Snowflake (ticker: SNOW). 

After Snowflake went public in 2020, it’s been a hilly ride for investors. Clearly Snowflake is a high-potential/high-volatility company, due to its disruptive approach to cloud-based technologies. They have built a robust product that is used by nearly 30% of the Fortune 500, including Adobe, BlackRock, Instacart, Lime, Rakuten, Twilio, and many others.

Snowflake has attracted the attention of famous names such as Warren Buffett and Cathie Wood, which probably explains the huge hype around this stock. But currently at a ~20% pull-back from its highs, we could be at a good entry point. What comes next could propel Snowflake to grow exponentially in coming years.

What does Snowflake do?

Snowflake is a cloud computing-based data warehousing company. It was founded in 2012 by three data warehousing experts: Benoit Dageville, Thierry Cruanes, and Marcin Zukowski. The company offers cloud-based data storage and analytics services. Snowflakes is designed to run on top of existing cloud technologies, whether they are from Amazon, Microsoft, or Google. 

It’s a cloud-agnostic technology that can be used both by startups interested in performance and scalability and big companies that have a high level of database complexity – and often have different regions using different clouds. Snowflake is built to make it all work smoothly, by eliminating data silos.

What’s your investment thesis?

  • Time for snow! Snowflake was overvalued last year, but the stock has had a tougher time in 2021. It could drop slightly more, but today’s valuation seems a good entry point for a stock with such a high potential, especially in the long run.
  • Snowflake is growing at a fast pace. Customers are pre-purchasing a massive amount of planned consumption. It means that customers are expecting to increase their platform usage, which is a very positive sign for growth.
  • A disruptive tech praised by a strong community. Snowflake has built a powerful technology that allows instant on-demand data access. It’s a game changer when it comes to computing large amounts of data. Look on Reddit and you will quickly find developers who really appreciate Snowflake’s high performance and pay-as-you-go model.

What are the key events you’re watching?

  • The evolution of the ecosystem. Partnerships and integrations with big players, such as Salesforce. Snowflake’s success relies on its ability to drive more compute.
  • Alignment of revenues with estimations. So far, they’ve done a wonderful job with a constant increase in platform usage, revenues, and 67% growth in new customers year-on-year. But who knows what the future holds for Snowflake? Will it be a snowball, or just melted snow?
  • New products and services. Until now, Snowflake has been very active in developing its marketplace. Snowflake customers can use it to monetize, or use third-party data shared by any Snowflake user. Of course this third-party data is ready-to-query, without needing to copy files or move data. I think that Snowflake’s ability to grow exponentially is tightly related to the expansion of these kinds of services. Think about Salesforce and its AppExchange, or Apple and the AppStore

What’s the upside potential if your thesis is correct?

Develop its international presence and community, improve performance, reduce costs, and develop new products and services, while improving customer retention. 

What are the big risk factors you’ve spotted, and how do you plan to mitigate them?

  • Customer retention. Pay attention to earnings calls and the customer retention metrics. Keep in mind that Snowflake is not based on a recurring subscription model. Thus, I encourage you to have a close look at the platform’s usage trend.
  • Competition from big names in the industry. Notably Amazon Redshift and Google BigQuery. Snowflake is faster and cheaper, but keep in mind that the best tech is not always the winner.
  • Shift to another even more disruptive technology. The cloud industry is expected to grow in the foreseeable future. But if you decide to invest in Snowflake, you could be interested in mitigating the risk by investing also in other players directly, or by buying cloud-tech focused exchange-traded funds (ETFs).

This insight was submitted by a community member for information and educational purposes. It doesn't represent the views of the Finimize team and shouldn't be taken as financial advice.

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Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

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