Buffett Stock at 52-Week Low, Time to Buy?

Before it even had a formal product on the market, Snowflake had achieved a valuation of $3.5 billion, a clear sign of the confidence investors had in the firm’s innovative approach to data warehousing and cloud technology.

Snowflake’s disruptive approach to these two items have revolutionized the way organizations manage and use their data. Unlike traditional data warehouses, Snowflake provides a scalable and flexible platform that enables seamless data storage, processing, and analytics across multiple cloud environments, including AWS, Google Cloud, and Microsoft Azure. Or in other words, enterprises aren’t tied into just Amazon or Google or Microsoft exclusively thanks to Snowflake.

Yet for all its innovation, Snowflake has fallen to a 52-week low, so is this stock that Buffett’s Berkshire Hathaway snapped up pre-IPO a buy?

Key Points

• Snowflake’s unique architecture decouples storage and compute resources, offering flexibility across AWS, Google Cloud, and Microsoft Azure, preventing vendor lock-in.
• FY 2023 revenue grew by 69% to $1.92 billion, including 510 customers generating over $1 million annually.
• Trading at a 52-week low, Snowflake boasts a 169% net revenue retention rate and 87% international revenue growth, supported by a $5 billion cash reserve, indicating strong long-term potential.

Wide Moat

It’s no surprise that if Buffett and his investment team snapped up Snowflake, the firm probably has a moat, and it does. Its primary competitive advantage lies in its unique architecture and technology.

The company’s platform decouples storage and compute resources, allowing users to scale them independently based on their needs. And this flexibility is a significant advantage over traditional and even some modern data warehousing solutions.

Indeed, Snowflake’s cross-cloud capabilities provide a unique selling point that permits customers to avoid vendor lock-in and optimize their cloud strategies.

Beyond its own inherent advantages, Snowflake operates in a cloud computing market that is forecast to grow from $371.4 billion in 2020 to $832.1 billion by 2025, at a CAGR of 17.5%. Within this market, the demand for cloud data warehousing is expected to rise significantly as enterprises continue to generate massive amounts of data.

When it comes to financials, Snowflake has clearly been executing on the top line but what about the all-important bottom line?

Strong Revenue Growth

Whether its financial services, healthcare, or retail, customer demand is high with over 6,300 customers and a full 510 of them generating over $1 million in product revenue annually. For FY 2023, the company reported revenues of $1.92 billion, representing a year-over-year increase of 69%.

Yet management hasn’t rested on its laurels as competition from Databricks and others grows – a key reason that has driven the share price lower. Notable collaborations include those with Salesforce, enabling deeper data insights for CRM, and with data integration leaders like Informatica and Talend.

These partnerships have expanded Snowflake’s reach and also created a more comprehensive solution for customers, which further entrenches them in the Snowflake ecosystem.

While the top line and gross margins have been impressive, the bottom line remains in the red. Yet while Snowflake is not yet profitable on a net income basis, it is showing progress towards profitability with a narrowing net loss margin. Plus, $5 billion in cash and equivalents provides more than enough liquidity to ensure it can sustain a rapid growth rate.

Time to Buy?

Now trading at a 52-week low, Snowflake trades below fair value on a discounted cash flow forecast basis for one of the rare times since going public.

With a net revenue retention rate of 169%, Snowflake is clearly hitting the nail on the head with customers who are significantly increasing their spending on the platform.

Plus, geographic expansion is showing great traction. International revenue grew by 87% year-over-year in FY 2023. So while competition is stiff with Amazon Redshift, Google BigQuery, and Microsoft Azure Synapse Analytics, Snowflake now offers about as good a reward to risk as it ever has.