Snowflake Inc.

SNOW Details

Key Positives:

Robust Free Cash Flow Position, Forbes Global 2000 Customers, Sequential Quarterly Revenue Growth, High Revenue Retention Rate of 174% in Q1 FY23, Increase in Gross Margins (65% in Q1 FY23 vs 50.2% of Industry Median)

Key Negatives:

Competition Risk, Higher Operational Costs, Negative EBITDA Margin of 42.3% in Q1 FY23. 

Snowflake Inc. (NYSE: SNOW) is a data lake, warehousing, and sharing firm that went public in 2020. The firm has more than 3,000 clients, including roughly a third of the Fortune 500. Snowflake's data lake holds unstructured and semi-structured data. Snowflake's data sharing feature enables businesses to acquire and absorb data virtually instantly, unlike a months-long procedure in the past. In general, the firm is recognized for providing data solutions that may be hosted on various public clouds.

Latest News:

• Launched New Unistore: Snowflake will launch a new Unistore workload on June 14th, 2022, to propel the next stage of innovation using both transactional and analytical data together in the data cloud.
• Snowflake and Carahsoft Team: On June 1, 2022, SNOW said that it has approved Carahsoft as an Amazon Web Services (AWS) Marketplace Distributor Seller of Record (DSOR), which might help public sector organizations that want to use the Snowflake Data Cloud with their procurement procedures.
• Stripe Joins SNOW to Unlock Value of Payment Data: Stripe, a financial infrastructure platform for businesses, has joined the Snowflake Data Cloud and Retail Data Cloud, allowing joint customers in any industry to access and leverage their Stripe payment data directly in Snowflake.
• Collaboration to Make Data Access Easier and Insights Quicker: On May 2, 2022, DELL and SNOW announced a partnership to connect data from Dell's industry to the Snowflake Data Cloud. This cooperation will allow clients to operate more freely in multi-cloud settings and quickly transform data into insights.

Q1 FY23 Results:

• Robust Topline Growth: The company's revenue in Q1 FY23 (ending April 30, 2022) was USD 422.37 million, up from USD 228.91 million in Q1 FY22. The table below indicates a constant upward trend in prior quarters.

(Source: Company Filings)

• Losses from Operations: The company posted an operational loss of USD 188.76 million in Q1 FY23 compared to USD 205.59 million in Q1 FY22.

• Q-o-Q Increase in Free Cash Flow Generation: From Q1 FY22 to Q1 FY23, the company's free cash flow and adjusted free cash flow has increased as depicted in table below.
  

• Operational Performance: SNOW currently has 6,322 total clients, with 206 generating more than USD 1 million in product revenue in the last 12 months. As of April 30, 2022, the net revenue retention rate was 174%.

Key Risks:

• History of Incurring Losses with Future Higher Costs: For the fiscal years ending January 31, 2022, 2021, and 2020, SNOW had net losses of USD 679.9 million, USD 539.1 million, and USD 348.5 million, respectively. It continues to devote considerable resources to improving the platform and increasing sales. If it cannot produce revenue growth, the business's value may be drastically reduced.
• Competition Risk: The markets are fiercely competitive in this industry and if it doesn’t compete effectively, the business, financial situation, and operational outcomes might suffer.

FY2023 Guidance:

(Source: Company Filings)

Valuation Methodology: Price to Book Value Per Share-based Relative Valuation

(Source: Analysis by Kalkine Group)

Stock Recommendation:

SNOW’s stock price has fallen 65.03% in the past six months and is leaning towards the lower of its 52-week range of USD 405.00 to USD 110.26. We have valued the stock using the Price to Book Value per Share-based relative valuation methodology and arrived at a target price of USD 151.43.

Considering the top-line performance, cash position, Strategic Customer Base, associated risks, and current valuation, we recommend a "Buy" rating on the stock at the closing market price of USD 127.36, as of June 22, 2022.

 1 Year Technical Price Chart (as of May 22, 2022, at 08:39 AM PDT). Source: REFINITIV, Analysis by Kalkine Group

Technical Summary Analysis

Technical Indicators Defined: - 

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors' appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the valuation has been achieved and subject to the factors discussed above. 

Note 3: The report publishing date is as per the Pacific Time Zone.