The Data Cloud is a popular investment these days. Both Berkshire Hathaway (BRK.B) and America’s largest public pension fund own shares in the data cloud company Snowflake (SNOW).
The California Public Employees’ Retirement System (CALPERS) bought 389,341 shares of Snowflake (NYSE: SNOW) in the fourth quarter of 2021, Barron’s reports. CALPERS is one of America’s largest pension funds with assets of $469.44 billion on 4 April 2022. In contrast, Berkshire Hathaway (BERK.A) owned 6.124 million shares of SNOW in the fourth quarter of 2021, Dataroma estimates.
Hence, some of America’s largest investors think Snowflake (SNOW) is worth buying. So what is Snowflake and does it make money?
What is Snowflake (SNOW)?
Snowflake Inc. (SNOW) operates a cloud platform that offers a variety of data services. Those services include data engineering, data warehouse, data science, data lakes, data applications, and data sharing.
They call Snowflake’s platform the data cloud. Customers can connect to the data cloud and access Snowflake’s services from anywhere on Earth.
A data lake is a storage repository that holds vast amounts of raw data. To elaborate, a company uses a data lake to store all the customer data it gathers.
A data warehouse is a data management system built to support analytics and intelligence activities. For example, a company will use a data warehouse to support its sales or customer intelligence applications.
How Snowflake makes money from data
Data engineering is the preparation of data for analysis and other uses. For instance, data engineering could prepare sales data for analysis by a finance program. Data science is the analysis of data by scientific means. Snowflake provides data for data science.
Data applications are programs and algorithms that process, store, and analyze data. A data application is any algorithm or program that needs data to run. Data sharing is the sharing of data from data lakes and data warehouse with applications and customers. For example, a data warehouse can share data from a financial application with an accounting program.
The Snowflake Data Cloud provides those services to finance, advertising, media, entertainment, healthcare, retail, technology, and manufacturing companies. The Snowflake Data Cloud also provides services to educational institutions and the government.
Additionally, the Snowflake Data Marketplace provides over 1,100 live datasets from over 240 data providers to customers.
How Much Money can Snowflake make from Data?
Thus, Snowflake Inc. (NYSE: SNOW) is both a Big Data and a Cloud company. Snowflake operates in some fast-growing businesses.
Big Data is a fast-growing business. Statista estimates Big Data’s global market revenue will grow from $70 billion in 2022 to $77 billion in 2023, $84 billion in 2024, $90 billion in 2025, $96 billion in 2026, and $103 billion in 2027.
Similarly, Statista estimates the world Big Data analytics market revenue will grow from $14.85 billion in 2019 to $64.09 billion in 2025. I consider Snowflake a data analytics company. Similarly, the total value of the global Big Data market could grow from $138.9 billion in 2020 to $229.4 billion by 2025, Precisely estimates.
In comparison, the global cloud computing market could grow from $445.3 billion in 2021 to $947.3 billion in 2026, MarketsandMarkets estimates. Hence, the global cloud computing market could have a Compound Annual Growth Rate (CAGR) of 16.3%.
Data Needs the Cloud
Streaming video, finance, healthcare, Fintech, and software-as-a-service (SaaS) are among the industries driving cloud computing’s growth. Hence, data is driving the cloud’s growth.
I think Snowflake will grow because data needs the cloud, and the cloud needs data. Moreover, the amount of data in the world is growing fast.
Statista estimates the total volume of data in the world will grow from 97 zettabytes in 2022 to 120 zettabytes in 2023. The global data volume will grow to 147 zettabytes in 2024 and 181 zettabytes in 2025.
“A zettabyte is 1,000 exabytes, and one exabyte is 1,000 petabytes,” PCMag explains. “Each petabyte is 1,000 terabytes. A zettabyte is enough storage for 30 billion movies, or 60 billion video games, or 7.5 trillion MP3 songs, according to Seagate. If you wanted three zettabytes of storage at home, you’d need to hook up 300 million 10TB hard drives.”
Hence, the cloud will grow because the world will need to store 175 zettabytes per year by 2025, PCMag’s Matthew Humphries predicts. I think a fast-growing cloud will create far more business for Snowflake.
How Fast is Snowflake Growing?
Snowflake’s (SNOW) revenues are growing with the cloud. Impressively, Stockrow estimates Snowflake experienced over 100% revenue growth for four straight quarters in 2021.
For example, Snowflake’s revenues grew by 117.2% in the quarter ending on 31 January 2021. The revenue growth rate fell to 110.37% in the quarter ending on 30 April 2021 and 104.44% in the quarter ending on 31 July 2021. The revenue growth rate rose to 109.52% in the quarter ending on 31 October 2021 and rose to 101.49% in the quarter ending on 31 January 2022.
Impressively, Snowflake’s quarterly revenues grew from $190.47 million on 31 January 2021 to $383.77 million on 31 January 2022. Thus, Snowflake is a growing company, but value investors will ask, does it make money?
Does Snowflake make money?
Snowflake (SNOW) is not making money from its data cloud. For instance, Snowflake reported a quarterly operating loss of -$152.03 million on 31 January 2022.
However, the quarterly operating loss shrank from -$200.40 million on 31 January 2021. Hence, Snowflake is losing less money.
Conversely, Snowflake’s quarterly gross profit grew from $107.21 million on 31 January 2021 to $247.98 million on 31 January 2022. Similarly, Snowflake’s quarterly operating cash flow rose from -$27.48 million on 31 January 2021 to $92.39 million on 31 January 2022. Hence, Snowflake’s moneymaking capacity is increasing.
How Much Cash Does Snowflake Generate?
Yet Snowflake is not keeping much of that cash. For example, Snowflake had a quarterly ending cash flow of $150.34 million on 31 January 2022. The quarterly ending cash flow fell from $660.80 million on 30 April 2021 but rose from -$3.12 billion on 31 January 2021.
Moreover, Snowflake is borrowing money to survive. Snowflake just reported seven straight quarters of positive financing cash flows. A positive financing cash flow shows money the company borrows.
For instance, Snowflake reported a quarterly financing cash flow of $4.254 billion on 31 October 2020. The quarterly financing cash flow fell to $22.04 million on 31 January 2022.
Interestingly, Snowflake’s debt stays steady. Snowflake had $205 million in Total Debt on 31 January 2021 and $206 million in Total Debt on 31 January 2022.
What Value Does Snowflake offer?
Snowflake (SNOW) offers growing value. For instance, Snowflake’s Total Assets grew from $5.922 billion on 31 January 2021 to $6.65 billion on 31 January 2022.
Yet, Snowflake is retaining slightly less cash. For instance, Snowflake reported $3.923 billion in cash and short-term investments on 31 January 2021 to $3.852 billion on 31 January 2022.
I think Mr. Market grossly overvalued SNOW at $185.98 on 20 April 2022. Astonishingly, the share price has been far higher. Mr. Market paid $401.89 for Snowflake on 16 November 2021 and $229.07 on 19 April 2022.
Thus, Snowflake is a growing company with a bright future but its stock is too expensive. Hence, I have to advice investors to avoid Snowflake until its share price falls to a realistic level.
Snowflake is an interesting company to watch because it shows the potential value of data clouds. Investors need to watch Snowflake because it shows how much money data clouds could make.