Interactive Investor

ii view: excitement fades at data star Snowflake

27th August 2021 16:08

Keith Bowman from interactive investor

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Helping clients to unite and analyse data, we assess prospects for this hot tech stock.

Second-quarter results to 31 July 2021  

  • Revenue doubled to $272.2 million
  • Loss of 64 US cents per share, down from a loss of $1.31 per share

Chief executive Frank Slootman said:

“Snowflake saw continued momentum in Q2 with triple-digit growth in product revenue, reflecting strength in customer consumption. While increasing net revenue retention rate to 169%, we also boosted gross margin and operating margin efficiency while our adjusted free cash flow was positive for the third quarter in a row.”

ii round-up:

US data cloud specialist Snowflake (NYSE:SNOW) provided no major surprises in these latest quarterly results. 

Second-quarter revenue more than doubled to $272.2 million as corporate customers increasingly used its data platform to bring together data from other cloud storage facilities to unite and analyse information. 

Customer numbers grew by 60% year-over-year to nearly 5,000, with 116 of those now generating trailing 12-month product revenue greater than $1 million. A loss per share of 64 US cents was down from a loss of $1.31 per share in the year ago quarter. 

Group customers include Sainsbury's (LSE:SBRY) subsidiary Argos, PepsiCo (NASDAQ:PEP), DoorDash (NYSE:DASH) and Pizza Hut. Marketing query times at Argos have fallen from six hours to three seconds using its product. 

A net revenue retention rate of 169% points to higher sales to existing customers and is up from 168% in the prior quarter. A total of 212 of the 2021 Fortune 500 companies now use its services. 

Although quarterly revenue beat analyst forecasts, the loss per share exceeded expectations, and Snowflake shares are down 3% in US trading. Floating at a price of $120 per share in September 2020, the shares now trade at just under $300 each. Warren Buffett's Berkshire Hathaway (NYSE:BRK.B) previously flagged an investment interest in Snowflake.

ii view:

Founded by Benoit Dageville, Thierry Cruanes and Marcin Żukowski, today Snowflake employs more than 3,000 people across 20 countries. Other group customers include Kraft Heinz (NASDAQ:KHC), Allianz (XETRA:ALV), Sonos and Domino's Pizza (LSE:DOM)

For investors, the data cloud specialist continues to report impressive growth. Revenue guidance for the full year 2022 was raised by $35 million to between $1.06 billion and $1.07 billion. And a total of 458 large customer adaptations in this latest quarter is up from 393 in the first quarter. But significant price appreciation from its September 2020 IPO now leaves the shares trading on a high valuation. An analyst consensus estimate fair value of $293 per share is close to the current price. For now, and following an exciting debut, investors might choose to wait for any market dips before building any long-term interest. 

Positives: 

  • Growing customer numbers
  • Increasing use of data

Negatives:

  • High valuation
  • No dividend payment

The average rating of stock market analysts:

‘Strong hold’

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  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 adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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