An article from Detroit Times on Snowflake's CEO's compensation package. Turns me off from investingin Snowflake at this time. His annual salary ismore than Microsoft, Google and Apple CEO's combined.How can investors have confidence in future growth andthe company turning profitable with the CEO diluting the value of the company with such a outrageous compensation package? Chief Executive Officer Frank Slootman one of the best-paid technology executives. A compensation package he received upon joining Snowflake in April 2019 awards him a batch of options every month – for four years – that are now worth almost $95 million each, or about $1.1 billion annually.Snowflake CEO Frank SlootmanSlootman’s pay includes more than 13.7 million options with a strike price of $8.88. The vast majority can already be exercised but the underlying shares vest monthly over four years, beginning with the month he started.He also gets a $375,000 annual base salary, which can go higher depending on the firm’s performance.Once the full options package is paid out in early 2023, it would be worth about $4.5 billion based on Thursday’s closing stock price.
It's based on company performance. Actually let me rephrase, its based on companies stock performance. If the stock doesn't do well then his options aren't worth as much.
The salary is way out of proportion to other companies you mention especially considering he has joined the company so recently in 2019. I read that it was the only way he be coaxed out of retirement to was with the massive pay package. Here is an article on the highest paid CEOs in 2019: https://www.investopedia.com/highest-paid-ceos-2019-4687532As you mentioned these are the salaries for CEOs of companies with over a trillion market cap:Apple 133MGoogle 86MMicrosoft 77MWith a 100B market cap for SNOW currently, roughly 1% of market cap is going for just the CEO's salary on an annual basis. Expenses for the company are already much higher than other companies in the industry, and I am concerned the companies product is being juiced for everything it's worth right now.I am still not sure what to think about repeatedly mentioning to investors that it's not a SaaS company but a "consumption company". There was even a few analysts asking why they think this is important to point out repeatedly. From what I can tell, they measure net retention rate different, and they focus on reporting RPO contrary to other SaaS vendors. Maybe I am wrong and this is a company like no other company before and therefore needs different metrics to determine performance.
While this package may sound ridiculous today, thanks to sky high stock price, one needs to look at what did it look like when he was awarded these options..Chances are, when vesting price is at ~$9, that was probably the share price value considered at that time.. and you cant blame the CEO for price to go over $350 that it currently trades at.Ofcourse, even at $9, this may be outsized but it may not look as ridiculous as it looks at current price. Besides, you have to credit Frank, just his name brings so much to this company. There has to be a reason why those VCs agreed to pay him so much.
I think it's a bit media sensationalist headline to stir jealousy. It's not much different than headline like: "The rich are getting xyz Billions richer during the pandemic while the poor's net worth is going down." To a growth investor, what matter most is the company's operating metrics. The most important of them is revenue growth rate. Others are less important to revenue growth rate. Of course, there are non financial metrics as well. I have my own ethical standards.
The salary is way out of proportion to other companies you mention...To be clear his salary is $375K. Not that big for a CEO at all.His total compensation has the potential to be huge, but that's only if the company delivers results and the stock market rewards them. For comparison, I don't think any Tesla shareholder begrudges Elon Musk's compensation.I am still not sure what to think about repeatedly mentioning to investors that it's not a SaaS company but a "consumption company". There was even a few analysts asking why they think this is important to point out repeatedly. From what I can tell, they measure net retention rate different, and they focus on reporting RPO contrary to other SaaS vendors. Maybe I am wrong and this is a company like no other company before and therefore needs different metrics to determine performance.I'm with you on this. I think the distinction he's drawing is that if you look at a subscription company like Netflix, customers pay a rate no matter how much they watch or don't watch. A consumption company is like AWS, where customers pay based on usage metrics like CPU consumed or storage occupied, or like DataDog, where customers pay per host monitored. Here is Snowflakes pricing (https://www.snowflake.com/pricing/pricing-guide/ ):1. All customers are charged a monthly fee for the data they store in Snowflake. Storage cost is measured using the average amount of storage used per month, after compression, for all customer data stored in Snowflake.2. A virtual warehouse is one or more compute clusters that enable customers to load data and perform queries. Customers pay for virtual warehouses using Snowflake credits.3. The cloud services layer provides all permanent state management and overall coordination of Snowflake. Customers pay for cloud services using Snowflake credits.What are Snowflake Credits?A Snowflake credit ... is consumed only when a customer is using resources, such as when a virtual warehouse is running, the cloud services layer is performing work, or serverless features are used.For pricing in dollars, visit https://www.snowflake.com/pricing/ and choose a Cloud Provider and Region.For instance, AWS West is $2/credit for the Standard plan, $3/credit for Enterprise plan, and $4/credit for the Business Critical plan. Capacity storage is $23/TB per month if you pay up front. On-demand storage is $40/TB per month based on usage. Finally:The cost of the Snowflake service is determined by actual usage which varies based on the individual customer application. Most Snowflake customers gain experience using Snowflake On Demand. That allows the application workload to be developed and tested and provides real-world experience to estimate the monthly cost. When the application workload is understood, an appropriately sized Capacity purchase can be made. I'm inferring that if you pay for "Capacity" instead of "On Demand" you save money ($17/TB per month to be exact). But, they understand you can't know what you need until your application is complete and running, so they expect people to use On Demand during development and then pivot over when complete.For a capacity purchase, the price of Snowflake credits is determined at the time the order is placed and is based on the size of the total committed customer purchase.So, they have volume discounts.As for not being SaaS, they are correct in that you don't get billed for months in which you have no data stored and no queries performed and no cloud services utilized. However, anyone with a running application is locked in anyway since moving that application off of Snowflake would require significant work, and besides they have already made a "committed customer purchase." Seems like a guarantee of future sales for those customers would want to get away from On Demand pricing.
In addition to above, there are other charges such as egress, data transfer b/w various platforms, replication, backups, etc. Source:https://docs.snowflake.com/en/user-guide/billing-data-transf...
I am still not sure what to think about repeatedly mentioning to investors that it's not a SaaS company but a "consumption company". There was even a few analysts asking why they think this is important to point out repeatedly. From what I can tell, they measure net retention rate different, and they focus on reporting RPO contrary to other SaaS vendors. Maybe I am wrong and this is a company like no other company before and therefore needs different metrics to determine performance.My take here is that unlike subscription revenue, which depending on stickyness of the product, is truly recurring, usage based can fluctuate a lot.. case in point, DataDog had for Q2 this year where they came out and said customers started optimize to reduce cost of usage... or if you follow TWLO, it has seen dramatic slow down on growth rate after election cycles in 2016 and 2018 (which BTW can happen again next quarter).. The reason why CEO may be insisting is that he can defend against or avoid frivolous lawsuits when such slow down happens.He may also want to highlight this as positive to analyst community because usage based also means one can see wild upside swings, say for e-commerce customers in holiday period.
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