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No. of Recommendations: 211
Part 1: Future Revenue
We are landing more Fortune 500 customers. We talked about we landed 19 in the quarter, but those 19 we landed, just to reiterate, we've recognized virtually no revenue on those customers. That's all in the RPO that will be in the next 12 months.

This is different from SaaS companies. When CRWD or DDOG gets a new customer, even if the customer only signs up for a single module with CRWD or DDOG, revenue will be recognized in that same quarter. The customer will likely add modules later and spend more, but immediately, in the first quarter they're a customer, they contribute at least some revenue. With SNOW, the company signs up and...I'll let the CFO tell it:

especially if you're doing a legacy migration, it can take customers six months-plus before we start to recognize any consumption revenue from those customers because they're doing the data migration. And what we find is -- so they consume very little in the first six months and then in the remaining six months, they've consumed their entire contract they have. And when we do a renewal, that's when most customers are doing the multiyear renewals once they've proven the use case on Snowflake. And so I haven't seen much difference other than we are, as you know, when Frank came here, he really started focusing more on enterprise customers.

With SaaS, each quarter 100% of revenue carries over into the next quarter. Sure, they are going to sell more, but they start at 100%. SNOW starts at well more than 100% each quarter, because customers who haven't paid yet are already customers.

Part 2: Visibility
With this future revenue, it's not "well, it's coming, and we'll see what it is when it gets here!" The RPO tells the story: Customers make plans with SNOW about what they want to spend, and they book it (and huge renewals come later). SNOW has such amazing visibility into what revenues will be in the future that when an analyst asked if AWS was going to continue to be their largest cloud provider the CFO said:

I think AWS will continue to be our largest cloud for quite some time, but we are definitely seeing a lot of large enterprise customers choosing to go with Microsoft. But as I mentioned, the revenue is lagging when we book a deal. So it's going to be the second half of the year in fiscal 2023 I think you're going to see Azure kick up as a percentage, but we still think AWS will remain our No. 1 cloud partner.

That's a year and a half from now. They have enough visibility to know that the customers on Azure will be ramping up then -- and ramping enough to move the needle on the AWS/Azure mix. Stunning. Also, the CFO said, So I do expect net retention rate this year to remain very high. It should be north of 160% throughout the year. The visibility is so insanely high that these guys know what their NRR will be!? Wow.

Part 3: Valuation and conclusions
I think the visibility into future revenue is the secret sauce SNOW has, that Buffett (and many of you -- Muji, Smorg, etc) saw a long time before I did. Because SNOW can see what revenue will look like WAAAAAAAAAAAAY down the road, the market (never wanting to leave a sure thing on the table) is inclined to pay up for that hypergrowth now. And we're talking triple digit revenue growth for many quarters to come, and even when it starts to slow down, I really don't think it will fall off a cliff, because for one, as Saul has said, data grows forever -- much more will be "consumed" a year from now, and more than that thereafter. But also, it seems to me that SNOW is enhancing what customers can do with data when they "consume" it with SNOW. Sure faster and easier to use...but also things like data marketplace, and then whatever they think of next.

So I can see why SNOW isn't valued like a SaaS company, or any company that doesn't enjoy its loaded spring dynamic. But that's not to say SNOW is "back up the truck" cheap. In fact, it's mostly to say: I don't know how to value this company, or how to compare it to other companies. And as always I also don't know how the market will digest everything with SNOW. So I'm proceeding cautiously: I took a 2.5% position yesterday. But whatever happens, this will be a fascinating company to follow, and I'm glad to have at least a small stake.

Bear
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No. of Recommendations: 37
Great post!

Considering their customer gains precede the revenue growth by 6 months or more, we have yet to see the revenue growth of the last 2 quarters and maybe more (basically since the IPO!). You stated this, but I think it bears (no pun intended) repeating as this may get lost in the other great points made in this post. This means the revenue we are seeing does not actually reflect the company’s growth, and they are still really good!

Another great point, that may be missed due to it not being the actual point, is that the consumption is planned. We may recall Fastly’s issue with the consumption model, where they lost business due to “surprise” bills that Cloudflare was happy to point out and jump on. This was a concern for me with Snowflake, so knowing there’s an important dialog around planning to mitigate surprises bumps my confidence.

For those us us already invested, this year’s stock price is not looking great even though the company is. We’ve certainly been patient with Datadog as a stock due to its performance as a company, it stands to reason that patience here may be needed as well. The price is definitely more attractive now than it was when I entered, but my current position size is about as comfortable as I’d like it. I will say that if I wasn’t already invested I would be doing so now.

Long SNOW
Griz
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No. of Recommendations: 0
Wow, tossing out Datadog and Snow in the same sentence. Personally, I'm getting an uncomfortable feeling with Datadog now that Crowdstrike has brought Humio under their wing. Haven't taken any action yet, but seriously considering trimming my Datadog position.
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No. of Recommendations: 0
Humio has an estimated 10-20 million annual revenue, I don't get your concern.
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No. of Recommendations: 8
Humio has an estimated 10-20 million annual revenue, I don't get your concern [with Datadog].

Not only is there a big revenue gap, but Humio is (at least the last time I looked at them) pretty much a one trick pony regarding log ingestion. In contrast, Datadog is about information: it's about having agents for everything, and understanding how to correlate and visualize. I'm not knocking Humio, I'm just pointing out that they are apples and oranges.

I don't know this for a fact, but I suspect that Humio was more of a technology acquisition than a business acquisition for Crowdstrike: how can Crowdstrike quick ingest and search all of their incoming threat data.

--CH
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No. of Recommendations: 12
I don't know this for a fact, but I suspect that Humio was more of a technology acquisition than a business acquisition for Crowdstrike: how can Crowdstrike quick ingest and search all of their incoming threat data.

Well, that's a fact. They said as much in the last call:

With Humio, we are now redefining next-gen XDR through a platform that spans endpoints, identities, applications, the network edge, and the cloud, CrowdStrike is building a unified data layer to power the next generation of enterprise security and IT. Humio provides us the ability to expand our data lake and to solve more security and non-security use cases in real time. I can't emphasize enough the power of index-free data ingestion when applied to security use cases, as it allows us to query the data in real time as it's being ingested.

But yes, Humio also provides optionality to expand into adjacent lines of business:

We believe that combining Humio's data ingestion and analysis engine with the CrowdStrike agent technology which provides OS- and application process-level telemetry, introspection capabilities, and smart filtering, will create a powerful data platform with a new level of speed and efficiency. This can be transformative and provide a fundamental advantage that has the potential to disrupt the log management and observability markets. Humio builds on the momentum we have already achieved with Falcon Spotlight and Falcon Discover to grow our total addressable market by solving broader use cases outside of traditional security. On day one, Humio broadens our reach into the log management market. This market alone is forecasted to be $4.9 billion in 2023 based upon IDC estimates. And that does not include any potential adjacencies, such as the massive observability market. Looking forward, we have even greater plans for this new CrowdStrike business unit.

Here's the most important part:

While it will take some time and investment to deliver this powerful combination to the market, we believe [Humio] has the potential to open up massive new TAM for CrowdStrike, provide a runway for growth well into the future, and ultimately create another line of business on par with our security business.
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No. of Recommendations: 2
SNOW and DDOG have pretty much 0 overlap.

The thing you should be concerned about is holding these stocks feels like swimming upstream against a massive market trend. The multiples of each one of them are contracting rapidly regardless of business results. If the Market is returning the multiples to pre-COVID levels, then these stocks have another 20-30% down to go. I'm still deciding if it's worth trimming/hedging this late or not.

Bnh
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No. of Recommendations: 28
The thing you should be concerned about is holding these stocks feels like swimming upstream against a massive market trend. The multiples of each one of them are contracting rapidly regardless of business results.


I have almost no concern for market trends. They come-and-go, and rather capriciously at that. Nobody knows how long multiple contractions will take place, nor how much of a contraction, nor if an expansion will follow soon thereafter. I am much more comfortable with forecasts for how a company will operate over the next quarter and next year than I do what market trends will do during the same period of time.

This is one of the great advantages of having high revenue growth, high gross margin companies. They grow and grow and grow regardless of market multiples such that they are protected on the downside and are set like a coiled spring on the upside.

Lee
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No. of Recommendations: 8
"This is one of the great advantages of having high revenue growth, high gross margin companies. They grow and grow and grow regardless of market multiples such that they are protected on the downside and are set like a coiled spring on the upside."


So I agree that the companies such as SNOW and many others that are followed regularly on this board are set out for the next decade,
The other thing that I also keep hearing time and time again is that the pandemic essentially condensed the next 10yrs of growth into 8-10months in 2020 for such companies.
So I absolutely think these companies will have revenue growth but what if that growth is already baked in to the price? So while the company grows at decent rate but not enough for the market as that growth is baked in and therefore the price stays relatively flat...
Have you guys experienced that before? I haven't been investing for long so that's a question that comes to mind.
Or Is there a way to assess that or atleast quantify/qualify that by some good judgement using TAM and multiples?
Thanks
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No. of Recommendations: 2
Multiples for high growth cloud stocks are still 2x or so of anytime before 2020. Typically measured by EV/Rev or Price/Sales.

That may be justified if growth, margin, visibility, etc has changed. Mostly it seems those changes are small but market has assigned higher valuations.
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