00:00 At 22 times revenue Snowflake is one of the most expensive stocks on the public markets.
00:06 The reason for that is rapid growth.
00:08 It was the fastest company in history to hit 1 billion in revenue and last years revenue
00:13 growth was close to 70%.
00:15 To understand Snowflake imagine you're a multinational corporation that has thousands,
00:20 even millions of different data sets covering all different aspects of your business.
00:26 Snowflake provides the software to organize all that data and then analyze it in the cloud
00:31 and it does this with artificial intelligence and machine learning.
00:34 Snowflake also has a unique pricing method whereby companies only pay for the amount
00:38 of storage and computing power that they use.
00:41 This means there's no upfront costs or long term commitments.
00:45 Based on the latest share price Snowflake is valued at $55.1 billion.
00:50 With $5.1 billion of cash and investments and zero debt the enterprise value is $50
00:56 billion.
00:57 Revenue over the last 12 months climbed to $2.3 billion and free cash flow was $636 million
01:03 but because the company is still investing for the future and because of stock based
01:07 compensation of almost a billion dollars net income was negative $858 million.
01:14 But it's also worth mentioning that Snowflake has remaining performance obligations of $3.4
01:19 billion.
01:20 The majority of this should be recognized as revenue within the next few years.
01:25 That means the price to sales multiple is maybe not as high as these numbers suggest.
01:30 And aside from rapid revenue growth Snowflake boasts a number of impressive metrics.
01:35 Net revenue retention in Q1 was 151%, gross margins were 77% and adjusted free cash flow
01:43 hit 46% of revenue.
01:47 And Snowflake is also a beneficiary of the AI boom.
01:50 Large language models are built on vast amounts of data and Snowflake can help organizations
01:55 run such models on their own data and help to structure non-text forms of data as well.
02:02 Also Snowflake is integrated with all three of the fast growing cloud platforms AWS, Google
02:07 Cloud and Azure.
02:09 On the Q1 earnings call CEO Frank Slootman said that "Data science, machine learning
02:14 and AI use cases on Snowflake are growing every day.
02:18 In Q1 more than 1,500 customers leveraged Snowflake for one of these workloads, up 91%
02:25 year over year."
02:26 Interestingly, Snowflake dropped 11% after earnings due to a cut in guidance.
02:31 But it took investors less than five trading sessions to recoup those losses.
02:36 Overall, Snowflake is a cash generating machine that is well positioned for the future of
02:41 artificial intelligence and cloud computing.
02:44 The main sticking point is the valuation and the significant amounts of stock based compensation.
02:49 Lets assume a scenario where Snowflake gets to $4 billion in revenue by 2025 and then
02:54 continues to compound at 20% per year.
02:57 If you assume a 30% conversion to bottom line free cash flow that puts free cash flow at
03:02 roughly $5.3 billion in 10 years time.
03:06 Apply a 35 times multiple to that gets the enterprise value to $182 billion which works
03:11 out to an investment return of 13.8% per year.
03:15 That is an aggressive and optimistic scenario but we are living in the age of data and Snowflake
03:22 is in the right position to deliver.
03:24 That's why I give the stock a bullish rating but these are my personal opinions and I do
03:29 own some shares in Snowflake stock.
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