Table of content
Winter is coming! or should we say the SNOW-storm has already struck and everything else is frozen. Whichever analogy seems appropriate, according to CNN, Snowflake is valued at $70 billion. (https://edition.cnn.com/2020/09/16/investing/snowflake-ipo/index.html)
So what makes Snowflake the "unicorn" share in the IPO September 2020?
Snowflake, a cloud storage company using Salesforce (CRM) and backed by Warren Buffett's Berkshire Hathaway, stole the show when the opening shares exceeded the expected $110 benchmark. Share prices escalated to $300 but closed at $245 with a successful $70 billion closing value. In the era of artificial intelligence and the world evolving by the second, these numbers may not seem extreme. But for a company established in 2012 and the skepticism associated with the startup, Snowflake took the IPO by storm selling 28 billion shares, beating Dell from the 2007 IPO.
You must be wondering about the factors which contributed to this success.
Service-Oriented Product Model
Simple and Efficient Product
While cloud storage is trending, the database often gives creeps sometimes to even data analysts. Snowflakes offer a simple model that doesn't require complex queries or conditional formulas similar to Oracle or Excel. A bridge between the old school queries and modern cloud databases, sorting or analyzing data is a matter of few clicks.
Growing Market Share
Since the pandemic hit, it's raining websites. Each website requires some level of storage. The pandemic shifted the customer perspective and market share. With accelerating cloud computing and storage demand, Snowflake was able to increase the market share by providing customers freedom from the brand dependency found in Google and Amazon.
According to the S1 report, We believe the addressable market opportunity for our Cloud Data Platform is approximately $81 billion as of January 31, 2020. (https://www.sec.gov/Archives/edgar/data/1640147/000162828020013010/snowflakes-1.htm#ia73499eb79a34ddeaa563501d30356b0_25)
The growth graph posted by Jeff Richards seconds their claim above. (https://twitter.com/jrichlive/status/1306602971698884608)
Great Leadership
Established in 2012, Benoit Dageville, Thierry Cruanes, and Marcin Zukowski started Snowflake. Using their extensive experience in data warehousing from Oracle and Vectorwise, the founders made it a unique product. Their first best decision was to give the world Snowflake and their second-best decision was to accept that they don't have the skills to grow a company exponentially. They gave the reins to Bob Muglia in 2014. By now, the company was well on its feet but Muglia took it from pennies to a hundred million. His executive experience from Juniper Networks and Microsoft soared the company's share value.
Another wind of change was Frank Slootman’s successor of Bob Muglia last year. Retired after a starling career, Slootman wasn't ready to jump back in but after the Snowflake success, all it took him was two weeks. Either it's the success of the Closer or Bob Muglia's hard work, Slootman came out of his retirement and helped Snowflake achieve new heights.
A blogpost by Sequoia, the Snowflake team has the following reviews on Frank Slootman's leadership:
"Having worked with Frank on the boards of ServiceNow and Medallia, we knew Snowflake was getting an insightful leader with an extraordinary command of details. Indeed, over the past 18 months, Frank’s operational rigor, relentless focus on serving customers, and deep understanding of the business itself have prepared the company well for this week’s milestone." (https://medium.com/sequoia-capital/snowflake-ipo-the-team-that-dreams-big-85f6b8eb475b)
The silver lining for Snowflake investors?
An on Growing Investment
Snowflake has blizzarded through the struggle phases and must like the team moto according to Sequoia, it's a dream team project. With almost no long term debt, the company balances its sheet at more than $87 million with a 158% net revenue retention rate. The cloud storage is selling like hotcakes with customers of small businesses to large enterprises.
The tremendous amount of data, in turn, will help Snowflake bring forth better customer requirement trends and solutions increasing sales by more than two hundred percent.
Companies are lining up to transition from their data warehouses and stores to complete the Snowflake transition. Another prominent example would be Office Depot. After switching of four data systems, Andrew Parry complimented Snowflake as "Beyond speeding up typical applications, Snowflake allows the company to answer data questions that were once impossible," (https://fortune.com/2020/09/15/snowflake-ipo-database-oracle-frank-slootman/)
Should you invest in Snowflake or not?
So should you pull a Fry from Simpsons and yell, "Shutup and take my money"? Hold your horses. Although the figures are enticing and the idea of the unicorn is beautiful but one can't ignore the elephant in the room.
Snowflake's beauty is its curse. An effective system running on the cloud storage of its competitors such as Amazon, Google, and Microsoft. It can prove to be a ticking bomb. If the three giants put their heads together and increase the pricing for Snowflake, the system won't be able to claim their market share. Another horrifying nightmare for the dream team can be the launch of a cheaper pricing model or services by the AWS, Cloud, or Azure systems, pulling their clients back in their fold.
On the other hand, not all dreams come true. Maybe Snowflake has a headstart over Amazon or Google and will maintain its exponential growth over the years. I'll leave you with Frank Slootman's description of Snowflake that he gave to the Fortune exclusively.
“It sucked me in. Just when I thought I was out, they pull me back in.â
(https://fortune.com/2020/09/15/snowflake-ipo-database-oracle-frank-slootman/)