Snowflake - Lunar Capital

Snowflake Melting?

Snowflake is strategically positioned to leverage the growing importance of high-quality data in powering AI applications, including both machine learning and generative AI. The premise is simple: the better the input data, the more effective and accurate the AI output.

Snowflake enables organizations to manage and structure their data in the cloud, offering secure and efficient data querying and sharing capabilities. Snowflake has recently invested in integrating a generative AI layer into its platform. This innovation allows users to interact with their data without needing specialized coding knowledge.

In its Q2 2025 results, Snowflake reported a 28.9% year-over-year increase in revenue, reaching $869 million. However, despite this growth, the company’s gross margin declined slightly to 72%, down from 74% in the same period last year. Additionally, Snowflake recorded an operating loss of $355 million; 41% of the company’s revenue. This was marginally down from an operating loss margin of 42% last year.

One of the persistent challenges for Snowflake, as with many smaller tech companies, is the competition for top-tier talent. Unlike Big Tech with their vast financial resources, Snowflake must find alternative ways to attract and retain skilled professionals. Stock-based compensation has been a key strategy, offering equity in the company as a significant part of an employee’s compensation package. While this approach is effective in attracting talent, it comes with the risk of diluting the company’s share base, reducing each share’s claim on future earnings.

Snowflake faces the delicate balancing act of incentivizing its workforce with equity while managing the potential long-term impacts on shareholder value through dilution. Navigating this fine line is crucial for Snowflake as it continues to scale. Snowflake’s share price dropped by around 10% after the announcement of their results, reflecting shareholder’s desire to see a better balance between shareholder returns and stock-based-compensation.

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Disclosures
Lunar Capital (Pty) Ltd is a registered Financial Services Provider. FSP (46567)
Read our full Disclosure statement: https://lunarcapital.co.za/disclosures/
Our Privacy Notice: https://lunarcapital.co.za/privacy-policy/
The Lunar BCI Worldwide Flexible Fund Fact Sheet can be read here.
This stocktake is prepared for the clients of Lunar Capital (Pty) Ltd. This stocktake does not constitute financial advice and is generated for information purposes only.

Snowflake Melting? Read More »

Snowflake – Trying to be a Snowball

Weekly Stocktake / By VCS Agency

Beneath every artificial intelligence application lies a vast sea of data. Snowflake allows companies to store their structured, semi-structured, and unstructured data in one location, and access it from anywhere around the world. Moreover, companies can seamlessly tap into third-party datasets through Snowflake’s Market Place. Currently, Snowflake is expanding its suite by integrating Generative AI tools into their products, enabling users to interact in natural language with Snowflake applications. Sridhar Ramaswamy has replaced Frank Slootman as CEO, as Snowflake tries to further develop its AI strategy. Ramaswamy held the position of Senior Vice President of AI at Snowflake.

For Q4 2024, Snowflake’s net revenue increased 33%, reaching $775 million. Simultaneously, Snowflake’s operating loss increased by 5.7%, now standing at ($276mn). A positive shift is evident in Snowflake’s gross margin, which increased from 73% a year ago to 74% this quarter. Additionally, the operating loss margin improved, decreasing from -44% a year ago to -36% this quarter.

Breaking down the expenses, Sales & Marketing, and Research & Development each constituted 47% of the revenue. Notably, a significant portion of this allocation was attributed to stock-based compensation. This practice is prevalent among smaller companies like Snowflake that have limited financial resources and use stock options to top up cash payments for staff. The aim is to incentivise employees to stay at their company for longer by offering them a higher amount of equity. In contrast, larger entities such as Microsoft, Amazon, and Meta, can rely more on cash-based compensation to secure top-tier talent.

Snowflake faces stiff competition from other well-resourced AI businesses, including Microsoft and Amazon. This compels them to make significant investments in sales and marketing for customer acquisition and engagement. Snowflake operates on a pay-per-use model, which has its own set of challenges. Companies tend to utilise less of their Snowflake credits during times of perceived uncertainty. Snowflake’s focus is to get more businesses to join their data cloud, while making their products easier for individuals to use.

Snowflake, Microsoft, and Amazon are held in the Lunar BCI Worldwide Flexible Fund. They are also held by Lunar Capital’s Offshore Portfolio clients.

Key Indicators

Index / Fund / Rate

Start of Year

Last Week

This Week

% Change YTD

Index / Fund / Rate

Lunar BCI WW Flexible Fund

Start of Year

188.33

Last Week

207.05

This Week

205.68

% Change YTD

9.21%

Index / Fund / Rate

JSE ALSI

Start of Year

76 893

Last Week

74 213

This Week

72 775

% Change YTD

-5.36%

Index / Fund / Rate

NASDAQ Composite

Start of Year

15 011

Last Week

15 997

This Week

16 274

% Change YTD

8.41%

Index / Fund / Rate

S&P 500

Start of Year

4 770

Last Week

5 089

This Week

5 137

% Change YTD

7.70%

Index / Fund / Rate

Prime Lending Rate

Start of Year

11.75%

Last Week

11.75%

This Week

11.75%

% Change YTD

0.00%

Index / Fund / Rate

USD/ZAR

Start of Year

18.30

Last Week

19.31

This Week

19.09

% Change YTD

4.32%

Index / Fund / Rate

EUR/ZAR

Start of Year

20.17

Last Week

20.89

This Week

20.68

% Change YTD

2.53%

Index / Fund / Rate

Brent Crude ($'barrel)

Start of Year

76.97

Last Week

81.66

This Week

83.33

% Change YTD

8.26%

Source: Iress

Click here to access your account to view statements, obtain tax certificates, add or make changes to your investments.

Our email address is: [email protected]

Snowflake – Trying to be a Snowball Read More »

Snowflake – A Benefactor of Artificial Intelligence

Weekly Stocktake / By VCS Agency

Snowflake, owned by Lunar Capital’s clients, assists businesses in organizing and structuring their data, and providing insights on their business. Data is crucial for gaining a clear insight into a company’s value, it’s performance and the factors driving the business. Snowflake efficiently organizes and stores data, enabling companies to easily use and share their information with others; while also providing the management with insights into their business.

Numerous questions have been asked regarding practical applications of Large Language Models (LLMs) in business and how companies can effectively integrate them. Snowflake is deploying LLMs on the structured data that is stored in their cloud infrastructure. The goal is to empower companies using their service to directly query their data without requiring the expertise of data scientists. The key lies in formulating precise questions, making the technology accessible to businesses as long as they have the necessary financial resources to use Snowflake’s services.

Snowflake released their Q3 2024 results last week. Revenue for the quarter increased by 32% year on year to reach $734 million. The gross margin increased from 74.6% in Q3 2023 to 78.3% in Q3 2024. Despite having strong revenue growth, Snowflake’s sales and marketing expense as a percentage of revenue was 48%. Snowflake also recorded an operating loss of $260 million.

Snowflake is classified as a high-growth company. A common characteristic among high-growth companies is that they operate at a loss in early stages to focus on acquiring new clients and enhancing their service offering. Once they reach critical mass, they then have sufficient revenues to be profitable, rewarding shareholders through dividends and share price growth. However, this strategy comes with inherent risks. Potential challenges include the failure to achieve anticipated revenue growth due to factors like lower-than-expected demand for their product. External factors, such as shifts in the macroeconomic environment, can also necessitate cost-cutting measures from their client base, which can impact Snowflake’s revenue growth.

If revenue doesn’t increase as anticipated, the company may be compelled to secure additional funding through debt or equity. This could result in incurring additional interest expenses or diluting existing shareholders through the issue of new shares.

Snowflake is held in the Lunar BCI Worldwide Flexible fund. It is also held by Lunar Capital’s Offshore Portfolio clients.

Key Indicators

Index / Fund / Rate

Start of Year

Last Week

This Week

% Change YTD

Index / Fund / Rate

Lunar BCI WW Flexible Fund

Start of Year

141.43

Last Week

182.9

This Week

183.29

% Change YTD

29.60%

Index / Fund / Rate

JSE ALSI

Start of Year

73 049

Last Week

75 712

This Week

75 534

% Change YTD

3.40%

Index / Fund / Rate

NASDAQ Composite

Start of Year

10 467

Last Week

14 251

This Week

14 305

% Change YTD

36.67%

Index / Fund / Rate

S&P 500

Start of Year

3 840

Last Week

4 559

This Week

4 595

% Change YTD

19.65%

Index / Fund / Rate

Prime Lending Rate

Start of Year

10.50%

Last Week

11.75%

This Week

11.75%

% Change YTD

11.90%

Index / Fund / Rate

USD/ZAR

Start of Year

16.98

Last Week

18.77

This Week

18.63

% Change YTD

9.72%

Index / Fund / Rate

EUR/ZAR

Start of Year

18.44

Last Week

20.53

This Week

20.29

% Change YTD

10.03%

Index / Fund / Rate

Brent Crude ($'barrel)

Start of Year

85.95

Last Week

80.26

This Week

79.26

% Change YTD

-7.78%

Source: Iress

Click here to access your account to view statements, obtain tax certificates, add or make changes to your investments.

Our email address is: [email protected]

Snowflake – A Benefactor of Artificial Intelligence Read More »