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Author Message   Entrepreneur Kurra Bewarse Username: Entrepreneur Post Number: 3593 Registered: 05-2011 Posted From: 172.58.168.25 Rating: N/A Votes: 0 Posted on Monday, June 14, 2021 - 6:04 am:    Snowflake's ultra-rich valuation putting a freeze on a seemingly bullish long-term outlook (238.54 -10.26) Snowflake (SNOW), the provider of a leading cloud-based data analytics platform, hosted an Investor Day conference last night in which it predicted a massive upswing in revenue over the next several years. After generating product revenue of $554 mln in FY21 (ending January), the company believes it can achieve $10 bln in product revenue by 2029. SNOW also sees non-GAAP product gross margin expanding to 75% over this time-frame, up from the current high-60% range, with operating margins hitting 10%. Despite this seemingly positive news, shares are trading lower on the session. The weakness is a function of the lofty expectations that come along with a sky-high valuation. Currently, SNOW is trading with a P/S of ~40x, based on FY22 revenue estimates. Amazingly, its valuation has actually taken a dive since its blockbuster IPO back in September of last year. When it opened for trading at $245 and launched above the $400 level in early December, the stock sported a P/S north of 100x. SNOW's exorbitant valuation has put a lid on the stock. In fact, shares are currently trading slightly below the IPO opening price. This "priced-to-perfection" profile explains why the stock is struggling to gain upward traction, but the fundamental picture for SNOW remains very bright. During the Investor Day conference, CFO Mike Scarpelli stated that SNOW's total addressable market has expanded to $90 bln from about $81 bln just prior to when the company went public. A key to this expanded market opportunity is related to SNOW's success in securing larger deals with enterprises, and, increasing adoption of its platform among existing users. When the company reported Q1 results on May 26, it disclosed that 104 of its total 4,532 customers generated product revenue of over $1 mln, on a trailing twelve month basis. That was up from 77 in Q4. Scarpelli expects this momentum with large deals to continue. By 2029, he projects that more than 1,400 customers will generate over $1 mln in annualized revenue and that the average annual revenue for those customers will jump to $5.5 mln from $3.4 mln last year. As SNOW's scale expands, margins are expected to improve, resulting in positive cash flow. In fact, the company already expects to breakeven on a free cash flow basis this year. Overall, the fundamental story for SNOW remains very compelling. The company is capitalizing on the exponential growth of data moving to the cloud and the need for enterprises to quickly and efficiently analyze that data. However, SNOW likely needs more time to grow into its ultra-rich valuation, as the stock's weakness today illustrates.