Snowflake (NYSE: SNOW) has been a roller coaster ride for investors. The Company held one of the most profitable IPOs of 2020. The IPO price was pushed from an expected $75-$85/share up to $120.
The day after the IPO Snowflake shares opened at $245/share and on Nov. 2 they peaked at $325.90, a 33% gain from the IPO. From that peak, they dove to $228 and bounced back up to an all-time high of $392.15 in late Nov, 2021.
Since then Snowflake has been caught up in a general market move away from emerging tech, and the share price dropped to $126.26 on November 09, 2022. That plunge has left many investors thinking that the stock is set for another bounce, and has many investors asking how to buy Snowflake stock.
Let’s take a closer look at Snowflake and the reasons why you might want to invest in the stock, and at how you can invest in Snowflake shares.
What is Snowflake?
Snowflake provides cloud-based data storage and management solutions to corporate clients. Snowflake’s data platform was designed for the cloud and provides instant, secure access to data.
Snowflake’s unique platform allows customers to store, reach, buy, sell, share, and process data more effectively than ever before. That capability drove a surge in businesses as pandemic-hit companies moved toward remote work models.
Snowflake currently has over 5,900 customers including close to 30% of the Fortune 500. At the end of 2021, the Company announced that 184 customers spent over $1 million each on Snowflake’s services in the last 12 months.
Why Investors Want to Buy Snowflake Stock
Emerging tech stocks have long been a favorite of growth-oriented investors. Tech companies that brought revolutionary products to the market first have often delivered exponential gains over the long haul.
Snowflake investors have solid reasons to believe that the Company has breakout potential. Here are a few of them.
A Stellar List of Investors
Snowflake’s early backing came from a host of tech-focused venture capital firms, including Sutter Hill Ventures, Altimeter Capital, ICONIQ Capital, Redpoint Ventures, and Sequoia Capital. Venture capital firms put over $25 billion into Snowflake before its IPO.
CRM software giant Salesforce made major investments in Snowflake both before and at the IPO. The two companies are developing an array of joint solutions leveraging their respective expertise.
Snowflake drew attention when Warren Buffet invested $735 million of Berkshire Hathaway’s money at the IPO. Buffet is notoriously averse to both IPOs and tech companies, so the investment was unexpected. GEICO, an insurance company wholly owned by Berkshire Hathaway, is a Snowflake customer and the investment is seen as an informed vote of confidence in Snowflake’s future.
Snowflake has recorded exceptional growth rates in several key metrics. The fiscal year ending in 2021 showed dramatic increases in revenue.
Snowflake has also seen continuous growth in Remaining Performance Obligations, which are services that have been contracted but not yet delivered.
Remaining performance obligations are a credible measure of future revenue growth.
High Net Revenue Retention
Net Revenue Retention is emerging as a critical measure of success in the software industry. This statistic measures the percentage of revenue from existing customers that decreases, repeats, or increases in a given period.
A Net Revenue Retention rate under 100 indicates that existing customers are spending less money on a company’s services. A rate over 100 indicates that customers are increasing their spending, an indication of satisfaction.
Snowflake’s Net Revenue Retention in their most recent quarter was an extraordinary 178%, indicating that customers are increasing their business with Snowflake. 100% of Snowflakes customers have recommended the company for four straight years.
A Large and Expanding Market
Snowflake estimates that its addressable market opportunity was $81 billion on Jan. 31, 2020. That was solely for the Company’s core business. Snowflake is pursuing additional markets it believes will be worth up to $84 billion by 2023.
Snowflake earned just under $200 million in revenue in its 2021 fiscal year. That leaves enormous room for growth. These markets will only expand over time.
The Downside: Snowflake is Losing Money
Snowflake lost $715 million in its last fiscal year. Losses are normal for emerging tech companies that are investing heavily in growth. The company is also sitting on a $3.85 billion cash hoard left over from its IPO, and debt is minimal, so there’s no immediate cash crisis.
The lack of profit is still a concern for investors, particularly at a time when markets are shying away from emerging tech stocks.
Another concern was that Snowflake projected FY 2023 revenues of $1.89 billion. That’s 66% higher than its last fiscal year, which most companies can only dream of but which still represents a slowdown from last year’s growth rate. The Company simply stated that it prefers to be conservative with revenue estimates.
How Can I Buy Snowflake Stock?
Snowflake is a publicly-traded company. To purchase the stock, you need an account with a US licensed stockbroker. Snowflake trades on the New York Stock Exchange (NYSE) under the ticker SNOW.
If you have a brokerage account, it’s simple to place an order for the stock. Search for the ticker symbol SNOW, click “buy,” and choose the number of shares you want.
You will place either a market order, which will cost the price of the stock at the time of execution, or a limit order, which will only be filled if the stock is available at a price you select.
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Should You Buy Snowflake Stock?
If you’re considering a purchase of Snowflake shares you’ll need to consider two questions.
Is This a Stock You Want to Buy?
There’s a compelling story behind Snowflake. Growth and customer satisfaction have been exceptional and the Company is very highly regarded in its business niche. All investments involve risk, though, and Snowflake is no exception. Here are some points to consider.
- Snowflake is not profitable. It’s normal for early-stage tech companies to invest heavily in growth, but the absence of profit is an issue that you should study and consider.
- The current growth rate may not be sustainable. Snowflake is growing at a remarkable pace but there’s no assurance that this growth rate will be sustained.
- Snowflake stock carries a high valuation. As of this writing, Snowflake shares are trading at over 55x sales. The Company will have to show continuous stellar growth to justify that multiple.
- Snowflake could be affected by adverse market conditions. Stock markets overall are carrying high valuations and a general market crash is possible. If that happens, stocks carrying high valuations could see the greatest declines.
All of these issues are speculative and there’s no assurance that any of them will have any impact on stock performance. You should still consider these and other risks before making a decision.
Snowflake is a provider of cloud-based data storage and processing solutions. The Company’s high-profile IPO, strong customer base, and rapid growth have drawn considerable investor attention. Snowflake is now seen as a leading emerging tech company.
Snowflake attracted financing from a stellar list of venture capitalists and has seen major investments from Warren Buffet’s Berkshire Hathaway. The Company has shown strong growth in revenues and has consistently attracted increasing spending from established customers.
Snowflake is a publicly traded US company. It trades under the ticker symbol SNOW on the New York Stock Exchange (NYSE). You can purchase stock through any licensed broker.
Snowflake stock trades at over 55x trailing twelve-month earnings, which means a high level of growth is already priced in. If growth falters or there’s a general market decline the stock could see a significant decline in value.