Best Software Stock To Buy Now: The technology sector has not had a good time of it in 2022. Many prominent brands such as Apple, Google, and Microsoft have all lost value since the beginning of the year, as inflation and rising interest rates have taken their toll upon the industry.
However, not all companies are doing so poorly. Cloud warehousing firm Snowflake is up over 20% in the last month, as the market increasingly realizes the importance of data to the broader economy as a whole.
In fact, cloud migration is a growing trend for almost every company now, and it’s no wonder that more and more businesses are making the switch. The cloud promises organizations significant benefits, including scalability, flexibility, cost savings, and increased security.
But the process is not a simple one. There are many factors to consider to ensure a successful cloud deployment once the shift has been made, and luckily that’s where Snowflake can be especially helpful.
So let’s take a deeper look at the company, and see what it offers from an investor’s point of view.
Snowflake Pricing Model Is Golden
Snowflake is a cloud-based data platform that enables users to store, query, and analyze data.
The company was founded in 2012 by three former employees of Google and Microsoft, and, after the firm’s $70 billion IPO in September 2020, SNOW became one of the most highly valued businesses in the cloud software industry.
Snowflake offers a pay-as-you-go pricing model, providing customers with a fully managed service that includes built-in features for data security, high availability, and disaster recovery.
With its wide-ranging customer mix, Snowflake is able to attract big-name corporations such as Adobe, AXA and AT&T, as well as many other small and medium-sized enterprises. As a result, the company has grown rapidly, scaling its platform to meet customer demands.
In addition to its data processing operations, SNOW also allows customers to sell data sets and analytics directly to other businesses. Indeed, Snowflake’s Data Marketplace is the first to create an exchange space where governments and private organizations can buy or share data.
Flexible Software That’s Fit For Every Business
In an industry teeming with other highly-capable rivals, Snowflake has distinguished itself by creating a unique solution for data management. Its most notable innovation is in its data cloud capability, wherein it can extract data from all sources and store it in a database, warehouse, or lake-like virtual structure.
Furthermore, Snowflake’s business model is also exceptionally flexible. The company has a variety of products and services, making it easy for customers to find exactly what they need. In addition, Snowflake offers several unique features, such as its data sharing function, which enables customers to collaborate and share data sets whenever appropriate.
Over the last few years, researchers have discovered that data-driven companies are more successful than those that don’t emphasize their business’s informational and analytical aspects. Because of this, industry leaders are increasingly aware of the need to invest in a data strategy to stay competitive within their sector.
In fact, prioritizing big data has been shown to reduce overall costs by 10%, and companies that do so are more likely to turn a profit as a result.
Although Snowflake is barely a decade old, it’s already snatched a 19% share of the data warehousing market. Moreover, SNOW believes it will have a total addressable market of $248 billion by the calendar year 2026, with opportunities in the cybersecurity, data engineering and unistore spaces.
Snowflake’s Metrics Are Astonishing
With product sales totaling $466 million, Snowflake reported headline-grabbing revenue growth of 83% year-on-year for the second quarter of fiscal 2023. It could also boast a customer count of 6,808, of which 246 generated product revenue of more than $1 million each.
However, perhaps the stand-out figure from the period is SNOW’s staggering 171% net dollar retention rate.
Net dollar retention (NDR) measures how much a company can keep and expand its business, usually through cross-selling and up-selling endeavors. Anything above 120% is typically considered good, suggesting Snowflake’s 171% is pretty much exceptional.
Interestingly, SNOW’s NDR rate has not been below 169% for at least the last five quarters, proving that its business is resoundingly “sticky.”. In fact, 100% of Snowflake’s customers recommended the company in 2022, proving that they certainly seem pleased with the service.
In addition to its stellar revenue and NDR rate, Snowflake also increased its remaining performance obligations by 78% to $2.7 billion. This metric measures the remaining value that exists on a contract and, as such, is a reliable indicator of what sort of future sales income the company will pull in.
The Oracle Of Omaha Seems To Like Snowflake Too
It’s widely assumed that Warren Buffett prefers value stocks whenever he can get his hands on them. However, testing that theory is Berkshire Hathaway’s stake in Snowflake, which, at 0.28% of its portfolio, is a small but not insignificant investment.
But what does Buffett see in SNOW that’s lacking in other high-growth ventures? Well, to begin with, the business is a cash-generating machine. Its adjusted free cash flow for the first quarter came in at $59 million, up massively from the $3 million it clocked in the same quarter last year.
Furthermore, as we’ve seen with the company’s NDR rate, Snowflake customers are spending, on average, 71% extra with the company every year – and this ability to inspire customer loyalty is another thing Buffett values highly too.
Is Snowflake A Buy?
Snowflake appears perfectly poised to lead the cloud revolution in the coming years. It has identified four main expansion drivers that will grow its gross margins over time, including its cloud agreement pricing, product improvements, economies of scale and enterprise customer success.
Moreover, while its year-on-year quarterly revenue grew 83%, investors should be aware that its annual revenue actually increased 106% from fiscal 2021 to fiscal 2022.
Although SNOW isn’t profitable on generally accepted accounting principles (GAAP) yet, the company is making money on a non-GAAP basis with an operating income of $17.5 million.
In short, despite some difficult macroeconomic conditions today, the future still looks bright for Snowflake and its shareholders.
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