SNOW - Snowflake: Too Much Revenue From Small Companies
2024-05-14 02:51:56 ET
Summary
- Snowflake's revenue growth has been declining due to its dependence on small companies with short sales cycles.
- The increasing number of small companies shutting down due to rising interest rates poses a significant risk to Snowflake's customer base.
- Snowflake's valuation metrics are significantly higher than its peers, indicating an overvaluation by the market.
Investment Thesis
While I believe Snowflake ( SNOW ) has undoubtedly been one of the most promising SaaS startups to emerge from Silicon Valley in recent years, recent slowing of revenue growth and declining net revenue retention has made me believe the company's foundation may not be as strong as I would have originally expected. Within the last three years, their revenue growth has decreased from 106% in 2022, 69% in 2023, and 36% in the most recent fiscal year. I believe the driving factor behind this decrease in revenue growth is Snowflake's dependency on small companies with short sales cycles. While these types of customers were quick to act in purchasing software during the more easy money cycles that funded smaller companies, much of this easy money has dried up. With this, many of Snowflake’s customers appear to be tightening their belts given slowing revenue growth and declining net revenue retention....
Snowflake: Too Much Revenue From Small Companies