SNOW - Snowflake - Earnings ETA 12/1/2021

Overview

Snowflake is a recently IPO’d (2020) tech company that specializes in data warehousing. In 2020 they reached an ATH of ~429 and proceeded to dump for about 6 months after to a low of 184. Since then it’s been on a up and to the right trajectory. A few days ago it started edging close to its ATH at about 404 before dumping with the rest of the tech stocks this Monday and Tuesday. Earnings are 12/1 AH and I think there can be some volatility leading up and after ER. More on that below.

What do they do?
Founded in 2012, Snowflake is a data lake, warehousing, and sharing company that came public in 2020. To date, the company has over 3,000 customers including nearly 30% of the Fortune 500 as its customers. Snowflake’s data lake stores unstructured and semistructured data that can then be used in analytics to create insights stored in its data warehouse. Snowflake’s data sharing capability allows enterprises to easily buy and ingest data almost instantaneously compared with a traditionally months-long process. Overall, the company is known for the fact that all of its data solutions that can be hosted on various public clouds.

How do they make money?
Selling SaaS related products, specifically their data warehousing service. Recently they have also got into the data marketplace business.

Why are they important?
Disrupting the cloud storage sector by creating cross cloud solutions to large data problems. Being cloud agnostic has become super important for more and more companies. It provides agility to move from different cloud providers easily. Snowflake supports the big 3 (AWS, Google, Azure).

What are their products?
Cloud storage, data exchange

Industry – Cloud Computing / Data Warehousing

Competitors

  • Amazon Web Services (AWS)
  • Microsoft (Azure)
  • Google
  • Cloudera
  • Oracle
  • Teradata
  • IBM
  • Databricks

Metrics

Market Cap: 119B
Revenue (ttm): 851.2M
% Held by Institutions: 68.96%
Put/Call Ratio: 0.48
Put/Call OI Ratio: 0.84
Total Cash (mrq): 4.14B

Next Earnings Estimate:

Est EPS: -$0.06
Est EPS Whisper: -$0.01
Est Revenue: $305.51M

Last Quarter Snapshot

Pros

  • They have grabbed a large number of fortune 500 companies, ~200. Once they have a foothold in the market, other companies may follow.
  • Employees appear to be happy, as well as the overall rating from indeed is slightly trending up.
  • They bill customers based on consumption, so they are banking on the ever increasing data usage. e.g. More data = more usage → more $$$.
  • They have cash on hand to continue to burn through while they expand and grow. Overall good financials.
  • Good retention rate and overall great NPS score means people like the product.

Cons

  • Technicals: Reaching close to its ATH, earnings may push it through or drop it back down to reality.

  • Insider trading: Last few weeks the CEO and top staff have been selling a good amount of shares.

  • Some are more bearish, and think a share dilution may be coming ref. Not sure I believe that will happen soon, but who knows.

  • For their valuation, overall revenue is low. By comparison Teradata (another data warehouse company) has about a 5B market cap, and generates 1.93B in revenue.

  • Analyst ratings have gone up in the past but seem to be leveling off.

  • They are in a crowded vertical with many big players (AWS, Google, Azure) that have similar or competing products.

Financial health

Overall health is strong. They have a large amount of cash on hand (~$4 Billion)

Earnings history

Overall they have been beating quarterly estimates

Breakdown of the days leading up (% change close to close) and trailing earnings. Earnings are AH, so price action of earnings are in the T+1 column.


Overall some good volatility.

Conclusion

Snowflake overall appears to be overvalued and could take a hit during earnings this quarter. It really depends on if their growth is slowing and/or spending significantly increases. However, because of their strong financials many may dismiss anything negative and continue buying because of future potential. Since the stock price has taken a beating the last few days I’m slightly unsure which way to play this. Medium term I think we’ll see some downturn if it get’s rejected from the ATH resistance. Not sure if the current downtrend counts as a real rejection. Options are ridiculous expensive, so size your risk appropriately.

Disclaimer

This is my first real DD so I would love the feedback so I can improve. Cheers!

This content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing in this DD constitutes professional and/or financial advice, nor does any of this information constitute a comprehensive or complete statement of the matters discussed or the law relating thereto.

References:

https://s26.q4cdn.com/463892824/files/doc_financials/2022/q2/Q2-FY22-Snowflake-Investor-Presentation_Final-(2).pdf

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Nice DD! i’ll try to find some additional information.

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Thank you for the DD. SNOW seems overvalued given their current revenue. I am wondering why they are not profitable with their current pricing model. So the question for me is, do they gain new customers because of the value of their product or because of the price, assuming its lower than competitors. Hard to predict the reaction of the market after the Earnings, guess it depends a lot on what is the sentiment on tech next week. A lot of IFs for my low risk tolerance.

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Ah, just what I was looking for.

SNOW seems to have a lot of investment potential, but it’s certainly in an area which makes it less beneficial enter if you hadn’t already over a month ago. Being near ATH can do that. With this recent sell-off, this very well could be a bearish sign as it closes into ATH levels.

Then again, there’s a lot of us who want to play the reversal which never comes. I think SNOW would be worth stepping into at its current price, but selling it the day before earnings. I decided I’m going to throw a monthly at this stock tomorrow depending on the direction it decides to go.

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Looking into $SNOW as well as $CRM & $CRWD. All three have earnings next week and earnings have been pretty bearish for fintech and covid pumpes tech companies. Great DD btw, excited to see where it goes once earnings hit.

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Volume as been pretty terrible with Snowflake as of late. Options bid ask spread is fairly large as well. It recovered from the drop with SPY, but now is mostly flat running into earnings. I will sit this one out and come back after earnings once IV cools off or a good entry presents itself. Still undecided how the market will react, as they still seem overvalued to me.

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Just wanted to say great DD and thank you for the contribution! I saw SNOW on a lot of hedge fund’s 13Fs and wanted to look more into this company. I’m traumatized from past earnings so I’ll probably get in after as it seems to be a really good long term investment, especially if their guidance is good.

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I’ll look at the details more later today, but market seems to like their earnings. Not sure how this all would have ended if we did not have a large number of red days before. We’ll know more during the call.

Some basic stats:
Gross margin increasing


Continued capture of large customers

Operating expenses decreasing

https://investors.snowflake.com/files/doc_presentations/2021/11/Q3-FY22-Snowflake-Investor-Presentation_vFINAL-(1).pdf

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Transcripts from the earnings call. Their main focus is still acquiring more fortune 500 companies and data sharing. They are pretty bullish on these 2 parts of their business. Looking at the TA side, they are swinging high off their downtrend. If they continue upward movement they may continue to reach up to their ATH again. I plan to observe SNOW only, just because of the overall volatility in the market. But there were some good entries if you could afford the high options cost. IV should be lower so at least there is that.

Some other good press:

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As earnings have past, I’m closing this thread. Any new plays will be created in a new topic.

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