Snowflake – Trying to be a Snowball
Snowflake – Trying to be a Snowball Read More »
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.
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]
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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.
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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.
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]
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.
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