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Margaret Moran
Margaret Moran
Articles (447) 

Snowflake: A Mixed Bag and Positive Outlook

Buffett's favorite cloud-based data-warehousing company reports 4th-quarter earnings for fiscal 2021

March 03, 2021 | About:

After the markets closed on March 3, Snowflake Inc. (NYSE:SNOW) reported earnings results for its fourth quarter and full year of fiscal 2021, which ended on Jan. 31.

The company achieved a promising revenue beat, but fell short of what analysts were predicting on the earnings front. Shares were down 4% in after-market trading following the news.

Earnings results

In full fiscal 2021, revenue was $592.04 million compared to $264.74 million in fiscal 2020. Meanwhile, the net loss per share was $3.81, an improvement from the previous year's net loss per share of $7.77. The operating margin was -24%.

For the fourth quarter, the cloud-based data-warehousing company recorded total revenue of $190.5 million, representing 117% year-over-year growth. The net loss per share was 70 cents, an improvement from the net loss per share of $1.67 of the prior-year period, while the operating margin stood at -105%. Analysts had been expecting revenue of $178.9 million and a loss per share of around 36 cents.

The company now has 4,139 total customers, 77 of which bring trailing 12-month product revenue greater than $1 million each to Snowflake. Remaining performance obligations stood at $1.3 billion at year's end, a 213% year-over-year increase that demonstrates strong future demand for the company's products.

Product revenue for the quarter was $178.3 million, a 116% year-over-year increase, while free cash flow was $7.3 million and adjusted free cash flow was $17.3 million. For the full year, product revenue grew 120% to $553.8 million, free cash flow was -$85.7 million and adjusted free cash flow was -$71.6 million. Snowflake defines free cash flow as net cash from operating activities minus purchases of property and equipment and capitalized internal-use software development costs. Adjusted free cash flow is free cash flow plus cash paid on employer payroll tax-related items on employee stock transactions.

As of Jan. 31, cash and cash equivalents stood at $820.17 million, while short-term investments were worth $3.08 billion and long-term investments were $1.16 billion.

Snowflake's CEO Frank Slootman had the following to say about the quarterly performance:

"We finished our fiscal year with strong performance and reported triple-digit product revenue growth. Remaining performance obligations showed a robust increase year-on-year, reflecting strength in sales across the board. Coupled with this rapid growth, we saw improving operating efficiency while expanding our footprint globally. These results indicate that customers across multiple industries rely on the Snowflake Data Cloud to mobilize their data and enable breakthrough data strategies."

Looking forward

In the first quarter of fiscal 2022, Snowflake guides for product revenue in the range of $195 million to $200 million, representing 94% year-over-year growth at the midpoint of that range. The operating margin is expected to be -23%.

For the upcoming full year, the company expects product revenue to increase between 81% and 84% to somewhere between $1 billion and $1.02 billion, with an operating margin of -19%.

The company expects its consumption-based model to give it an advantage over competitors who offer software-as-a-service models. While SaaS models are often more profitable in industries that have seen their growth stagnate, the consumption model typically has more potential in industries that are expected to see strong growth in the future. Based on Snowflake's own estimates, data warehouse value of $14 billion will become approximately $81 billion in value for the cloud data platform.

Valuation

Snowflake's stock closed at $247.03 per share on Wednesday for a market cap of $69.93 billion. The price is roughly flat since the company's public debut on Sept. 16, 2020, when shares hit the market at $245 apiece.

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It is still too early in Snowflake's lifetime as a public company to apply common valuation metrics to it with any degree of success. Investors in this stock are putting their money on its growth story. Snowflake helps its clients change the way they store data, making it so that they can store data in one place (the cloud) instead of relying on separate silos. Despite competing with tech giants such as Microsoft (NASDAQ:MSFT) and Amazon (NASDAQ:AMZN), Snowflake now controls roughly half of the data storage market, according to analytics company Slintel.

Gurus who have put their faith in Snowflake include Warren Buffett (Trades, Portfolio), who owns 2.16% of shares outstanding, as well as Philippe Laffont (Trades, Portfolio) with 1.44%, Frank Sands (Trades, Portfolio) with 1.35%, Chase Coleman (Trades, Portfolio) with 0.62% and Andreas Halvorsen (Trades, Portfolio) with 0.22%.

Disclosure: Author owns no shares in any of the stocks mentioned. The mention of stocks in this article does not at any point constitute an investment recommendation. Investors should always conduct their own careful research and/or consult registered investment advisors before taking action in the stock market.

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