Photo by: STRF/STAR MAX/IPx 2020 9/16/20 Snowflake shares more than double in its Initial Public … [+]
Bozeman, Montana-based cloud data platform operator, Snowflake, went public a bit over a year ago with its share price doubling on the first day of trading to close at $240. Its shares had risen about 31% as of September 23 — below the S&P 500’s 36% increase.
Snowflake is growing rapidly — yet its most recent earnings report forecasts double- rather than triple-digit growth.
To propel its shares, I think it must beat expectations when it reports third quarter results and raises its guidance.
Snowflake partners with Amazon Web Services (AWS) to help companies get business value from AWS’s machine learning (ML) and artificial intelligence (AI) services. One such company — Western Union — told me that this partnership has helped its business.
This partnership also features Snowflake making substantial payments to AWS for infrastructure services and competition with AWS’s data warehousing service.
Will the Snowflake/AWS partnership accelerate Snowflake’s growth? While Snowflake declined to share the revenue it generates from the AWS partnership, AWS said “Amazon SageMaker [which enables ML services for Snowflake’s Data Cloud] is one of the fastest growing services in AWS history. We have more than 100,000 customers using AI/ML services.”
(I have no financial interest in the securities mentioned in this post).
In the second quarter of 2021, while slowing down from its pace before going public, Snowflake was still growing fast — beating top-line expectations while losing more money than investors had expected.
How much has its growth rate slowed? In the year ending January 2020, Snowflake’s sales soared 173.7% to $264.7 million while its net loss nearly doubled to $348.54 million. As I wrote in August 2020, Snowflake reported 121% revenue growth in the July 2020 ending quarter.
A year later, that growth rate was still high — but slower than the year before. In the second quarter of 2021, its revenue popped 104.5% to $272.2 million — about 6% more than analysts expected — while its second quarter loss soared 251% to about $190 million, according to MarketWatch.
Snowflake expects growth to decelerate to still-high double digit rates. For the quarter ending October 2021, Snowflake projected product revenue of $280 million to $285 million — the midpoint of which is 90% above its previous year’s revenue. Snowflake expects full fiscal year 2022 product revenue in the range of $1.06 to $1.07 billion — the midpoint of which is about 93% more than the year before.
“Snowflake saw continued momentum in Q2 with triple-digit growth in product revenue, reflecting strength in customer consumption,” CEO Frank Slootman said in a statement.
Snowflake and AWS jointly serve many significant customers including Instacart, Western Union
This year, the companies intend to double their co-selling opportunities by focusing on specific industries such as financial service and media and entertainment.
Ultimately, this partnership aims to help companies gain insights that boost their effectiveness and efficiency.
One company that gets value from AWS is Zocdoc, a service that helps end users connect with medical care providers. Amazon’s ML tool, SageMaker enabled Zocdoc to get critical applications up and running far more quickly by automating model development.
How so? According to Amazon, Zocdoc data scientists used Amazon’s SageMaker to “build, train, and deploy” models from scratch in “less than a day” that enabled users to find the right doctor and book an appointment at the most convenient time and location. Before SageMaker, Zocdoc data scientists got involved with the model development — which “slowed down the product development teams.”
ML models work by analyzing all kinds of data — both structured and unstructured (think Tweets). Connecting all this corporate data to ML is where Snowflake comes in.
One AWS service that works with Snowflake is SageMaker Data Wrangler — a program that cuts the time to pull together data for ML from “weeks to minutes,” according to Amazon. Since June 2021, companies that use Amazon SageMaker Data Wrangler can use Snowflake as a data source without writing any code.
AWS is happy to be collaborating with Snowflake. As Bratin Saha, Amazon AI VP and General Manager of Machine Learning Services, told me in a September 16 interview, “SageMaker is growing fast because it creates valuable customer insights. For example, Georgia Pacific used [our product] to optimize the speed of paper manufacturing to improve quality by 40%.”
Snowflake sees great potential in its collaboration with AWS. As SVP of Product, Christian Kleinerman, told me on September 16, “We are adding value to customers for two main reasons. For the first time in 20 years, we made innovations in database technology that accommodates technically what customers want. Companies can use our data cloud to get the right data into ML models to create business value. Collaborating with AWS, we will democratize AI and ML — integrating it into every domain from sports and entertainment to health care.”
Western Union helps people and companies move money through more than 550,000 agent locations worldwide for millions of customers across retail and digital channels.
Western Union has enjoyed significant benefits from the Snowflake/AWS partnership. As Pavan Yerra, Senior Director in WU’s Chief Data Officer organization told me on September 17,”We need a single source of truth for building models and since we do not tie ourselves to a single cloud service provider, we appreciate that Snowflake works with all of them. Our models help us to match the right product offer to our different customer segments.”
Yerra pointed out that Western Union’s partnership with Snowflake and AWS reduces its costs by simplifying data movement and boosts revenues by increasing its marketing success rate through more effective targeting of offers to groups of customers with a higher propensity to purchase.
A broader sample of customers suggests that Snowflake’s Data Warehouse and AWS SageMaker are popular with customers — some of whom see potential for improvement.
Snowflake Data Warehouse gets 4.7/5 stars from 141 customers on Gartner Peer Insights. A favorable review highlights how the product “simplifies capacity management and ensures fast response times for all workloads in the business.” A less favorable review emphasis the need for Snowflake to improve its “user interface and user experience.”
Meanwhile SageMaker gets slightly lower scores — 4.3/5 stars from 127 reviews, according to Gartner Peer Insights. A favorable review noted that “the actual capabilities of SageMaker are quite astonishing.” A less enthusiastic customer said that Sagemaker is useful for inference but not for “training or data management.”
When Snowflake went public, CNBC wrote about its complex relationship with AWS. Snowflake relies on AWS for its infrastructure and contracted to spend $1.2 billion on AWS technology between 2020 and 2025.
Snowflake is hedging that bet. As Western Union pointed out, Snowflake runs on other cloud platforms — such as those from Microsoft and Google.
Snowflake also competes with AWS’s own cloud data warehousing service. As CNBC noted, “AWS is making heavy engineering and promotional investments in its own competitor, Redshift.”
In 2018, Amazon noticed that Snowflake was winning business from Redshift. In response, AWS established “a sales team to address the problem” and by introducing Aqua, a service that Andy Jassy — now Amazon CEO — said boosts query performance 10-fold over “any other cloud data warehouse solution out there,” reported CNBC.
Snowflake says it is comfortable with the complexities in its partnership with AWS. As Kleinerman wrote in an email, “Our customers’ needs drive everything we do at Snowflake. We do compete with Redshift in the data warehousing space, and we partner with most other [AWS] teams, and SageMaker is an example of a great partnership. Both companies understand these dynamics, and the partnership benefits largely outweigh the competitive elements. We always do what is right for the customer at the end of the day.”
In the absence of a clear answer from Snowflake, I am guessing that its partnership with AWS may not enhance its revenue growth enough to restore Snowflake’s triple-digit revenue growth.
Perhaps its third quarter report will shed more light on whether Snowflake can keep its growth rate from slowing down.
I ditched corporate America in 1994 and started a management consulting and venture capital firm (http://petercohan.com). I began following stocks in 1981 when I was in
I ditched corporate America in 1994 and started a management consulting and venture capital firm (http://petercohan.com). I began following stocks in 1981 when I was in grad school at MIT and first analyzed tech stocks as a guest on CNBC in 1998. I became a Forbes contributor in April 2011. My 15th book — published in November 2020 — is “Goliath Strikes Back: How Traditional Retailers Are Winning Back Customers from Ecommerce Startups.” I appeared eight times in the 2016 documentary: “We The People: The Market Basket Effect.” (http://www.themarketbasketeffect.com/). I also teach business strategy and entrepreneurship at Babson College in Wellesley, Mass. (http://www.babson.edu/Academics/faculty/profiles/Pages/Cohan-Peter.aspx)