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Sunday, 12/06/2020 10:41:03 AM

Sunday, December 06, 2020 10:41:03 AM

Post# of 52
>>> Snowflake Is the World’s Most Expensive Software Company. The Street Just Raised Its Price Targets.


Barron's

By Eric J. Savitz

Dec. 3, 2020


https://www.barrons.com/articles/snowflake-stock-spikes-as-street-ups-price-targets-after-first-earnings-report-51607012924?siteid=yhoof2


Snowflake is easily the world’s most expensive software company.

Snowflake shares are trading sharply higher Thursday, as Wall Street analysts celebrate the cloud-based data warehouse company’s first quarterly earnings report since its initial public offering in September.

Snowflake (ticker: SNOW) went public in mid-September at $120 a share, more than doubling on the first day of trading to $253.93. The stock gradually traded higher from there, peaking at $342 on an intraday basis.

While the stock dipped in after-hours trading on Wednesday night, it sharply reversed course on Thursday, with at least 10 Wall Street analysts raising their price targets on the company. The challenge for the Street is valuation: With a market cap of about $90 billion, the stock is trading at about 160 times current estimates for fiscal-year 2021 sales, and about 83 times estimated fiscal-year 2022 sales.

That makes Snowflake easily the most expensive software company on earth—but not many companies are producing 100%-plus sales growth.

For the fiscal third quarter ended Oct. 31, Snowflake posted total revenue of $159.6 million, up 119% from a year ago, with product revenue of $148.5 million, up 115%. The company reported “remaining performance obligations” of $927.9 million, up 240%, with a “net revenue retention rate,” a measure of repeat business, of 162%.

Snowflake reported an operating loss of $48.1 million, for an operating margin of minus 30%, free cash flow of minus $37.9 million, and adjusted free cash flow of minus $37.1 million. The company had a net loss of $1.01 a share.

BTIG analyst Gray Powell notes that Snowflake topped Street expectations for gross profit, product revenue, and operating loss. “The company is seeing improved momentum with larger enterprise customers, better unit economics and improved net retention rates,” he writes in a research note. “Some could pick at Q4 product revenue guidance where the $164.5 million midpoint was slightly below the Street at $166.1 million. However, we think it will likely be viewed as conservative given the magnitude of the Q3 beat. Plus, it is hard to complain when growth remains at 100%+ at this scale.”

Powell adds that he came away from the report “with a higher degree of confidence in the long term growth story,” but he keeps his Neutral rating “due entirely to valuation.”

Piper Sandler analyst Brent Bracelin was “impressed” with the quarter. He writes in a research note that Snowflake “remains the fastest growing cloud software firm,” adding 12 Fortune 500 customers in the quarter, topping 70% gross margins for the first time, and showing surprising growth in remaining performance obligations. “The pace of new multi-year enterprise deals gives us confidence in the longer-term growth trajectory,” he writes. Bracelin repeats his Overweight rating, and ups his target to $312 from $264. (Note that the stock on Thursday is already above his target price.)

Oppenheimer analyst Ittai Kidron writes in a research note that Snowflake delivered “solid results topping Street expectations,” with customer metrics that were “best-in-class, highlighting solid execution and a massive opportunity.” He notes that guidance was “only in line,” reflecting a conservative approach in the current environment, but he sees “a long runway for growth ahead.” Kidron repeats his Outperform rating and ups his price target to $320 from $300. (The stock has blown past his target, too.)

Clearly, the challenge for Snowflake investors remains valuation. Morgan Stanley analyst Keith Weiss concedes in a research note that the company has “blazing growth,” but he keeps his Equal Weight rating, even as he moved up his target price to $265 from $220, noting that the company’s valuation “leave us waiting for a better entry point.”

He’s not getting one today. Snowflake stock is up 13.5%, at $335, in recent trading. The S&P 500 is up 0.2%.

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