Trade Alert: Bought Snowflake at $154. Will continue to buy on declines.
Positives:
There is some sandbagging in the guidance for the incoming CEO to make a better mark, I don’t believe they’ve completely elaborated on likely growing revenue streams.
New CEO, Shridhar Ramaswamy has an excellent resume; 15 years at Google, and then co-founding Neeva, which was bought by Snowflake. With his tech cred he actually has better product knowledge than the outgoing legendary CEO, Frank Slootman, and his tech cred will be a big factor in taking Snowflake forward.
Partnership with Nvidia is a fairly big deal for a recurring AL/LLM solution/service. Snowflake’s AI product Cortex should be out in the second or third quarter of 2024. Snowflake has also responded well to Databricks comparisons and shouldn’t be seen as lagging. The other new product Snowpark should also grow a lot faster.
Snowflake’s free cash flow margin was very impressive at 35% of sales last year. Like most tech companies it doesn’t generate GAAP profits, but this a hugely positive number, exceeds CrowdStrike’s 30% and several other tech growers. It has indicated 29% free cash flow margin for 2024.
Moving to a consumption model has shown poorer forecasted revenue growth at 22-23% but bookings are growing at much faster levels, Remaining Performance Obligations (RPO) grew at 41% so this is not a long-term problem.
Negatives
The company is expensive at 15x sales with only 23% growth! Even after the stock dropped 35% lower than its 52-week high.
It could stay sideways for a year, or if there is another weak quarter, it could drop to $130-135, which is around 12-13 x sales. Look out for a bumpy ride!