Snowflake (Nasdaq: SNOW) was the biggest software IPO in history. Prior to the IPO, it was expected to go public between $100 and $110. It actually ended up opening around $245 due to much stronger demand than anticipated. The stock actually hit a high of $315 before closing around $250. This gives the company a valuation of just over $70 billion.
Snowflake's Success
Although the company is only five years old, its forecasting $800 million in revenue over the next 12 months. Snowflake believes its total addressable market is $120 billion given that $80 billion is spent on cloud data and $50 billion is spent on cloud analytics. Of course, both figures will also be growing given that spending on cloud computing is expected to grow at a 22.3% cumulative annual growth rate over the next 5 years.
Currently, Snowflake has 20% of the Fortune 500 as customers. And, it's the fastest-growing company in the stock market with over $100 million in revenue. It also has gross margins above 80%. On a quarterly basis, it's shown a remarkable ability to add more customers and increase revenue per customer.
Snowflake's strength is a reflection of investors' bullish risk appetites and the company's massive potential. Snowflake is a "data cloud" company that is built on top of the major existing cloud computing platforms - Google Cloud (NASDAQ: GOOGL), Microsoft's Azure (NASDAQ: MSFT), and Amazon Web Services (NASDAQ: AMZN).
Data Warehouse
Snowflake's business solves a pressing need for companies and helps them improve their operations which theoretically will help them make more money. Companies are producing immense amounts of data across the various units of their business. There is so much data that companies don't have the resources to analyze and extract insights from it.
Snowflake solves these problems by taking these "data lakes" and reassembling them into digital "data warehouses" where the data is organized by various categories even across different business segments. Once organized, companies can run queries to extract meaning and context from this data which can then be used to become more efficient and improve operations.
Competition
It's interesting that Snowflake's competitors are the cloud platforms that it built its business on top of. Amazon, Google, and Microsoft offer their own cloud data services. However, these have not gained the traction that Snowflake has for a couple of reasons.
One is that the legacy cloud data warehouse only works on their systems, while Snowflake works on all three platforms. This means it's more flexible and companies aren't necessarily locked into one platform. More importantly, across all benchmarks, Snowflake's software works better in terms of delivering better results while using less computing power.
It's not entirely surprising since Snowflake was built from scratch to solve this one problem by a team of data engineers from Oracle (Nasdaq: ORCL). But, this does mark one of the few times that the mega-cap technology stocks have been defeated by an upstart despite deeper pockets and a first-mover advantage. Additionally, Snowflake will benefit from network advantages as its software will iterate and improve with more data, more queries, and more users.
Another long-term opportunity is that companies will be able to selectively choose what data it would like to make public or share with others. Through this, Snowflake will be able to create data markets and be a data broker which could also be another revenue driver in future years.
It's also an indication that Amazon, Microsoft, and Google might not be best equipped to build the higher-value services and products on top of the cloud platforms they have built. In some ways, it's like how the Internet Service Providers made the Internet possible by laying fiber and connecting homes, but companies like Google and Facebook have created more value building on top of the Internet than the ISPs created themselves.