The fabled Oracle of Omaha is renowned for his ability to pick winners out of scores of publicly traded companies. But one of Warren Buffett’s (/Berkshire Hathaway’s) underrated stock picks stands out as highly unconventional.
It’s not an established brand and it doesn’t yet have massive cash flow, or even arguably a wide moat.
What is this unicorn?
Snowflake (SNOW), a forward-thinking cloud-computing powerhouse that has tripled revenue since it raised $3.4 billion in its September 2020 IPO at a valuation of $33 billion.
Company highlights include:
- SNOW integrates a variety of cloud services, like Amazon Web Services and Google.
- It enhances customers’ data from a wide variety of data resources.
- From there, it grabs the data and uses Artificial Intelligence (AI) to provide keen predictive insights for customers.
In short, SNOW offers advanced data mining and analytics to offer key insights for customers’ marketing and sales teams.
Clearly it has a formula that is working. In its third-quarter report, SNOW announced revenues were up 110 percent year-over-year.
Customer count is also blowing up, rising from 3,553 in Q3 2020 to 5,416 in Q3 2021. Currently, management claims to have 148 clients spending more than $1 million each year.
Snowflake = (Cloud + Data) At Scale
Snowflake is all about data, data analytics, and maximizing the power of cloud computing.
The ROI Snowflake and its clients report is almost unbelievable (but that’s the power of data analytics). Forrester Consulting conducted a Total Economic Impact (TM) study in mid-2020 to evaluate the organization. What Forrester found is nearly astounding:
- A 50% reduction in customers’ time to roll out their business products
- 3-year ROI: 612%
- Up to 75% of time saved by using Snowflake to load data
- A total revenue boost of over $21 million over three years
Snowflake claims it can unify a business’ data warehouses, data lakes, and other siloed data allowing full compliance with privacy laws, including GDPR, the California Consumer Privacy Act (CCPA), and the NY SHIELD law.
Snowflake Customers: Who Are They?
Snowflake serves five market verticals and has bragging rights to some significant customers. Those verticals are:
- Financial Services, including major clients such as Capital One, MasterCard, Allianz, and Western Union
- Advertising, Media, and Entertainment, including giants like Warner Media Group, Pinterest, A&E, and Lionsgate
- Retail and Consumer Packaged Goods, boasting clients like Office Depot, Kraft Heinz, Asics, and PepsiCo
- Healthcare and Life Sciences, such as Anthem, McKesson Health, Novartis, and Siemens
- Marketing Analytics, with clients like Doordash, Cisco, Square, and U.S. Foods
Who Is Behind The Snowflake Avalanche?
Snowflake’s co-founders are Thierry Cruanes, Benoit Dageville, and Marcin Zukowski .
Cruanes and Dageville first met while working at Oracle. Both are natives of France. Polish-born Zukowski holds his Ph.D. from the University of Amsterdam, where he founded Vectorwise, a company born from his invention of vectorized query execution.
Dageville holds a Ph.D. from the Université de Paris VI, and Cruanes holds a Ph.D. from University Paris VI – Pierre et Marie Curie. He also has some 40 patents.
As of this writing, it appears Zukowski may have left the company, as he is no longer listed as part of the leadership team on Snowflake’s website.
But Technology Is So Volatile
Tech stocks are often volatile–but rewards are commensurate with risk. When considering Snowflake, investors need to channel Warren Buffett’s advice on how to view investing.
He’s often said in the past most people buy stocks hoping they go up. In contrast, he is happier when stocks go down knowing he can buy more of them, and make more long-term. He views his purchases as owning pieces of businesses, not pieces of paper.
Snowflake is a company where an investor needs to brace for massive share price volatility and focus on fundamentals: revenue growth and net retention rates – both of which are outstanding.
For those who prefer a short-term outlook: a quick look at SNOW’s current candlestick patterns cements the opinion that the stock isn’t as low as it’s going to go, and it’s nowhere near the high–which could be an upside of up to 60 percent. That’s based on three current patterns: Engulfing Bearish, Bullish Engulfing, and Bullish Doji Star.
Buy, Hold, or Sell?
The bottom line is short-term Snowflake has the potential to fall a little further but long term, expect this Buffett stock to deliver outsized returns for patient investors.