Over the years, there have been numerous technology companies that went public on equity markets. Several of them including Shopify (NYSE: SHOP), The Trade Desk (NASDAQ: TTD), Okta (NASDAQ: OKTA), Roku (NASDAQ: ROKU), and many others have already derived exponential gains for investors.
However, the tech sell-off in the last month has also meant recent IPOs have lost massive ground. Shares of Snowflake (NYSE: SNOW) are trading at $208.6 which is 51% below its record high but it is still trading higher compared with its IPO price of $120.
Let’s take a look to see if the enterprise-facing cloud-based company is a good buy right now.
Snowflake - an overview
Snowflake provides a cloud-based data platform to enterprises. This platform allows customers to consolidate data and derive meaningful business insights as well as build data-driven applications.
It was in fact one of the first data warehouse platforms to leverage cloud computing and develop an architecture for enterprises at a low cost. Now, companies can easily integrate their structured and unstructured data on Snowflake’s robust platform and gain business insights.
In the quarter ended in January 2021, Snowflake’s revenue growth stood at 117% year over year. In fiscal 2021, sales were up 124% at $592 million.
While the company continues to post an operating loss, its profit margins are improving due to a massive uptick in top-line growth and a high net revenue retention rate of 168% which indicates current customers are spending more on the Snowflake platform.
The company reported an operating margin of a negative 92% which was lower than its negative 135% figure in fiscal 2020 and the negative margin of 192% in 2019. In Q4, the company posted a net loss of almost $200 million and its net loss was over $500 million in fiscal 2021.
However, Snowflake also managed to generate a positive free cash flow of $17.3 million in the last quarter, compared to its sales of $178 million.
Snowflake’s remaining performance obligations soared 213% and the number of customers that spend over $1 million each year on the company’s platform now stands at 77, up from 65 in the October quarter.
Around 186 Fortune 500 companies use the Snowflake platform and the company has successfully managed to keep its largest clients engaged with its suite of cloud-based solutions.
Valuations and more
Wall Street expects Snowflake’s revenue to grow by 84.7% to $1.1 billion in fiscal 2022 and by 65% to $1.8 billion in fiscal 2023. They also forecast its loss per share to narrow from $1.56 in fiscal 2021 to $0.57 in fiscal 2023.
Snowflake’s management is far more optimistic and expects revenue to grow between 92% and 95% in the current fiscal year.
However, in case the sell-off continues, Snowflake stock can continue to trade at a lower price due to its frothy valuation. The stock is valued at a market cap of $59 billion, indicating a forward price to sales multiple of 53.6x which is sky-high.
A loss-making tech company is no longer an exception. Market participants will be interested to know if Snowflake can continue to beat Wall Street estimates consistently and improve its bottom-line to turn profitable sooner rather than later.
Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.
