Could Snowflake (SNOW) Be a Web Unicorn?
Unlikely analytics start-up Snowflake has found Its footing AS a fast-growing tech company.
How Internet unicorns come to pass might as well be make believe. Because San Mateo, Calif.-based data analytics shop Snowflake’s story on becoming an established fast-growing technology company sure seems like pure magic.
Certainly Snowflake knows how to paint a glitzy – if not entirely plausible – business argument. Snowflake helps firms organize and then analyze massive data flows. Businesses hire Snowflake to structure the vast currents of information that slosh around big-data software like Hadoop. Snowflake then plays a similar role to Microsoft’s Access analytics program. Users simply click on the data to be analyzed; they enter a series of standard commands and after some computational grinding, out comes trend reports, analytics, and maybe some insight.
Particularly for standard business analysis, where sums, averages, and comparative change are what matter, Snowflake’s demos are impressive.
Even more magically, Snowflake charges no upfront fee. Users pay per use. There is no software to install. Anybody can test drive it for a month. Snowflake is grabbing patents and major deals with the likes of Goldman Sachs and others. Major institutional investors are betting on the company and its fast growth: Revenues grew by 164 percent, this year from last. Total assets jumped by around 32 percent. By some measures, Snowflake is, almost magically, the fastest growing software company for some time, if not for all time.
But then there are the dark issues that limit Snowflake’s spell over the markets. Net losses jumped by around 95 percent, year over year. Cash lost in operations grew by around 23%. Even more preposterously, Snowflake’s market cap, of around $60 billion, is getting far too close to the market size of the entire cloud analytics business, which is roughly $80 to $90 billion. Even more worrisome, Snowflake appears defenseless against similar products from established software firms, like Amazon’s Redshift, Google’s BigQuery, and Microsoft’s Azure SQL. There is also limited long term potential for Snowflake in complex machine learning analytics. Such concerns are driving bets against the firm: Sellers have outpaced buyers on the equity over the past few months. Stock prices are down.
As much as we would love to pile on with these contrarians seeing limits to Snowflake, that is simply not what we’re hearing. Instead the message is, Snowflake’s stock is simply becoming more attractive, particularly when compared to other risk-adjusted tech investments. As the economy emerges from the pandemic, businesses may have no choice but to reanalyze nearly a year’s worth of pandemic-polluted data, and a useful tool like Snowflake will only be more valuable.
It’s just a matter of time before Snowflake’s valuable points-of-entry crystallize out of the sky.