Mr. Market thinks Warren Buffett is right about data-cloud company Snowflake (SNOW). Snowflake’s share price rose from $122.45 on 15 June 2022 to $190.14 on 15 June 2023. However, Snowflake’s price fell to $184.18 on 16 June 2023.
Buffett’s Berkshire Hathaway (BRK.B) has owned 6.13 million SNOW shares since first quarter 2020. This purchase surprised investors because Snowflake was an initial public offering (IPO). Buffett rarely invests in IPOs.
Moreover, Snowflake is a tech company and Buffett likes to avoid tech. To explain, Snowflake offers fully managed platform with multi-cluster data architecture that supports complex applications in the cloud. For example, data science, data engineering, cybersecurity, machine learning, centralized finance, and decentralized finance (DeFi).
Snowflake is Growing
Snowflake (NYSE: SNOW) is growing. For example, Stockrow credited SNOW with five straight quarters of double-digit revenue growth.
Astoundingly, Snowflake’s revenues grew by 84.51% in the quarter ending on 30 April 2023. However, revenue growth rate fell to 53.48% on 31 January 2023 and 47.64% on 30 April 2023. Consequently, Snowflake’s quarterly revenues rose from $422.37 million on 30 April 2022 to $623.60 million on 30 April 2023.
In contrast, Snowflake’s quarterly gross profit rose from $274.44 million on 30 April 2022 to $414.19 million on 30 April 2023. However, the quarterly operating loss grew from -$188.77 million on 30 April 2022 to -$273.24 million on 30 April 2023.
Snowflake’s business is growing. The number of Snowflake customers grew from 3,117 in the first quarter of 2021 to 4,996 in the first quarter of 2022, Statista estimates. Snowflake’s customer count grew to 6,808 in the second quarter of 2023.
Snowflake is the Data Warehouse market leader
Conversely, Enlyft claimed to have data on 24,056 companies that use Snowflake. Enlyft estimates Snowflake is the largest data warehouse company with 28.56% of the market. In contrast SAP Business Warehouse had 22.76% of the data warehouse market, and Amazon Redshift had 17.33% of the market.
A data warehouse is an enterprise is system they use for the analysis and reported of structured and semi-structured data from many sources. Data warehouses are popular because they can store both current and historical data.
Hence, you can use a data warehouse for both custom reports and ad hoc analysis. Uses for data warehouses include point-of-sale data, marketing automation, artificial intelligence, internet-of-things (IoTs), customer relationship management, data science, machine learning, and finance.
Snowflake (SNOW) grows with Big Data
Data Warehouses are an integral part of Big Data. Big Data companies need warehouses to store all the data they accumulate. Big Data is growing fast. Global Big Data revenue could grow from $77 billion in 2023 to $103 billion 2027, Statista estimates. Big Data revenues grew from $7.6 billion in 2011.
The world needs more data warehouses because the volume of data is growing fast. For example, people and software created almost 90% of the world’s data between 2020 and 2022, Markets and Markets estimates. Hence the amount of data grew by 90% in two years. Moreover, machine data collected by the IoT, is growing 50 times faster than other data.
Data is growing fast because everybody is creating it. Ordinary people spend four to six hours a day generating and consuming data. For example, you generate at work, when you make purchases, when you surf the net, when you use social media, when you play games, when you bank, and when you watch streaming video.
Moreover, over 80% of data is not in a standard database. Hence, organizations will need solutions like Snowflake’s Data Cloud to store and sort through that data.
How Much Cash is Snowflake is Generating?
Unlike most Buffett picks, Snowflake (SNOW) generates a small amount of cash. For example, Snowflake reported a quarterly operating cash flow of $299.44 million on 30 April 2023.
The quarterly operating cash flow grew from $184.61 million on 30 April 2022. However, the quarterly ending cash flow fell from $1.080 billion on 30 April 2022 to $670.84 million on 30 April 2023.
Yet, cash comprises much of Snowflake’s assets. For example, Snowflake had $7.447 billion in Total Assets and $3.946 billion in cash and short-term investments on 30 April 2023. The cash and short-term assets grew from $3.815 billion on 30 April 2022 but fell from $4.008 billion on 31 January 2023.
Why Buffett bought Snowflake (SNOW)
Thus you can call Snowflake a cash-rich company. It generates a small amount of cash but keeps a lot of cash.
More importantly, Snowflake has little debt. Snowflake had a Total Debt of $255 million on 30 April 2023. The Total grew slightly from $206 million on 30 April 2022.
Hence, I can see why Buffett bought Snowflake. It has little debt and keeps an enormous amount of cash around. Thus, if Snowflake keeps growing with data, it could accumulate enormous amounts of cash as Microsoft (MSFT), Amazon (AMZN) and Alphabet (GOOGL) do.
Thus, if you are looking for a big data investment that generates cash. I think Snowflake is worth examining. I think Mr. Market overvalued Snowflake at $184.18 on 16 June 2023. Yet, I find Snowflake attractive because of its ability to retain cash.
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