Piper Sandler Report:
Observations from Summit:
Raymond James Report:
Piper Sandler Report:
PIPER SANDLER: It has been three years since we attended the last Snowflake Summit in 2019, but in general, we came away from the user event impressed by the quality and calibre of attendees, which included many Fortune 100 customers, and the broadening number of use cases for SNOW.
The primary investor pushback and fear that a consumption driven model coupled with cost optimization efforts could materially erode growth potential proved to be an overly bearish view based on our customer conversations.
We recommend large-cap growth investors take advantage of the cost optimization overhang and continue adding to positions in SNOW, which has multi-billion growth potential, great leadership, great technology, and a disciplined operating model that is profitable and generates positive free cash flow. Maintain Overweight.
Observation #1:
Observation #1: Clean rooms could become the new killer app. The biggest surprise to us by far was the number of customers that were excited about and investing in (data) clean rooms. This is a new term that didn’t exist two years ago, but has quickly surfaced with the potential to become the killer app for advanced data sharing, bringing a multiplier effect across partners, suppliers, and customers.
Clean Room:
What is a (data) clean room?
Clean rooms built on Snowflake didn’t exist a couple years ago but have emerged as one of the biggest new initiatives for many enterprises in 2022. Customers see a huge unlock opportunity to share data in a highly compliant manner with granular control via Snowflake data sharing (not file sharing) technology with partners, suppliers, and customers.
Fortune 50 | Healthcare: “We plan to go live with a (data) clean room within the next three months.
Fortune 1000 | Apparel: “We are standing up a (data) clean room this summer after lengthy
discussions with legal teams.”
Fortune 500 | Consumer Goods: “The most exciting Snowflake use case for us this year is the (data)
clean room.”
Observation #2:
Observation #2: Cost optimization could remain a near-term overhang. Several customers are in the process of adopting cost optimization controls, which suggests that this investor overhang could remain front and center near-term.
Observation #3:
Observation #3: Strategy to address on-prem begins to unfold. Broader read-only support for external tables via Apache Iceberg, AWS S3, Dell, and Pure Storage expands the boundary beyond cloud by adding query functionality to cloud and on-premise data under the Snowflake umbrella for the first time.
Observation #4:
Observation #4: Unistore marks the first step into transactional realm. Expansion into transactional workloads has promising longer-term potential and broad appeal but could be 18 months away from going into production based on our customer conversations. That said, 73% of workload migrations today already come from mixed OLAP/OLTP migrations.
Observation #5:
Observation #5: Recession may cause delays, but aid broader adoption. Several customer conversations suggest that investor fears that a recession coupled with a consumption pricing model could materially erode growth might be too pessimistic. One F1000 financials customer disclosed plans to spend 50% more on SNOW this year despite revenue contraction and outlined scenarios where rising default risk in a recession could spark even higher spending.
Raymond James Report:
A Lot of SNOW in Vegas, Analyst Meeting Takeaways Despite nearly 100 degree temperatures, there was a lot of SNOW in Vegas this week at Snowflake’s well attended customer event and coincident analyst meeting. The customer event drew ~13,000 and the analyst session had over 100 attendees in-person. Following the sessions we summarize our takeaways.
● Event: We attended Snowflake’s in-person customer event, Summit 2022, and analyst
meeting in Las Vegas. We initiated coverage of Snowflake about two weeks ago.
● Among the top debates is how a recession could affect Snowflake. Analysts sound concerned
because Snowflake recognizes revenue based on consumption. We could envision scenarios
that drive more usage during an economic crisis, but also ones that lead to slowed
consumption.
Snowflake highlighted an example tied to improving supply chains from
Kraft-Heinz that shares data with partners (e.g., Walmart, grocery stores, etc.) to help
improve efficiency. Snowflake’s CEO asserted its hiring plans remain unchanged.
However, management also acknowledged that during the early days of the pandemic, select verticals (e.g., airlines, hospitalities) reduced consumption with Snowflake.
● Some investors may focus too narrowly on customer counts. Management emphasized the
trend of growing revenue per customer.
We have tracked and forecast revenue per customer, which has bolstered our confidence in our long term model. Snowflake’s growth drivers come from two dimensions: growth in revenue per customer and expansion of the customer base.
Currently, 45% of global 2000 are $1M customers. The average for the global 2000 TTM spend
reached $1m last quarter, up from $630K in F1Q22. The sales shift to a vertical approach from
geographies can also help drive growth.
● Snowflake passes efficiency gains to its customers, and this garners some pushback from
the investment community. Management describes “customer first as its #1 corporate value.”
We support the practice and perceive it as among the reasons customers come to and stay
with Snowflake. Snowflake estimates the practice reflects a ~5% headwind to revenue. The
tactic leads customers to bring more work to Snowflake, so it is a net benefit.
● Announcements: Snowflake strives to increase its differentiation. Snowflake is previewing Snowpark for Python, one of the most popular programming languages for developers, and characterized this as one of the most significant announcements at the event.
With the new Native Application Framework, currently in private preview, developers can build applications and monetize them on Snowflake Marketplace, and consumers can securely install and run those applications, directly in their Snowflake instances, reducing the need for data to be moved.
Snowflake launched Unistore, a new workload that expands the capabilities and delivers a modern approach to working with transactional and analytical data together in a single platform. Unistore extends the power of the Snowflake Data Cloud to streamline and simplify the development of transactional applications, while providing consistent governance, strong performance, and near-unlimited scale to customers.
Snowflake also asserts that competitors lag its data sharing capabilities, contrary to the claims by some competitors.
