Snowflake has been on fire lately. In the past six months alone, the company’s stock price has rocketed 96.1%, reaching $274.90 per share. This was partly thanks to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Is it too late to buy SNOW? Find out in our full research report, it’s free.
Why is SNOW a good business?
Named after the unique architecture of its data warehouse which resembles a snowflake pattern, Snowflake (NYSE: SNOW) provides a cloud-based data platform that enables organizations to consolidate, analyze, and share data across multiple cloud providers.
1. Billings surge, boosting cash on hand
Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.
Snowflake’s billings punched in at $1.27 billion in Q2, and over the last four quarters, its year-on-year growth averaged 24.8%. This performance was fantastic, indicating robust customer demand. The high level of cash collected from customers also enhances liquidity and provides a solid foundation for future investments and growth.
2. Projected revenue growth is remarkable
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite, though some deceleration is natural as businesses become larger.
Over the next 12 months, sell-side analysts expect Snowflake’s revenue to rise by 32.2%, according to S&P. This projection is eye-popping and indicates its newer products and services will fuel better top-line performance.
3. Customer acquisition costs are recovered in record time
The customer acquisition cost (CAC) payback period represents the months required to recover the cost of acquiring a new customer. Essentially, it’s the break-even point for sales and marketing investments. A shorter CAC payback period is ideal, as it implies better returns on investment and business scalability.
Snowflake is very efficient at acquiring new customers, and its CAC payback period checked in at 26.9 months this quarter. The company’s rapid recovery of its customer acquisition costs indicates it has a highly differentiated product offering and a strong brand reputation. These dynamics give Snowflake more resources to pursue new product initiatives while maintaining the flexibility to increase its sales and marketing investments.
Final judgment
These are just a few reasons why we think Snowflake is a great business, and with the recent rally, the stock trades at 14.1× forward price-to-sales (or $274.90 per share). Is now a good time to buy despite the apparent froth? See for yourself in our full research report, it’s free.
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