In the third quarter, cloud infrastructure expenditure increased 37% year over year, with Amazon, Microsoft and Alphabet’s Google accounting for 63% of the market. Snowflake’s cloud-based data warehousing technology is interoperable with many cloud services. Therefore, this is fantastic news. Snowflake is profiting from the market’s expansion. Snowflake is used by some of the world’s top corporations to organize, distribute and gather data in order to improve their operations. Before we look at why investors might want to avoid the stock, let’s look at three reasons to purchase it.
Data warehousing, data lakes, data engineering, data research, data application development and data sharing are just a few of the functionalities available on Snowflakeâ€™s system. There are numerous reasons why a firm might select Snowflake, but the ease of use, solid security features and a consumption based business model that only charges consumers for what they use are just a few of the most important. Snowflake’s expansion is threatened by competition from Amazon Web Services and other big cloud providers that provide comparable services. However, Snowflake distinguishes itself by allowing data sharing to increase the platform’s use cases. The expanding network impact of Snowflake should result in yet another competitive advantage being lower switching costs. As it expands the marketplace for shared data, Snowflake incentivizes businesses to stay with them since moving to another platform would mean losing access to data that would otherwise be unavailable.
On the other hand, Snowflake should generate $1.5 billion in free cash flow by fiscal 2029, according to management’s long term goal. Investors appear to be betting on that scenario and then some. The current market capitalization of Snowflake is $101 billion (total shares outstanding multiplied by the stock price). That’s 67 times what the company expects free cash flow to be in seven years, according to management.
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