Snowflake- A Rare 2021 Exception - Amazon.com (NASDAQ:AMZN), Citigroup (NYSE:C)

Last Thursday, shares of Snowflake Inc (NYSE:SNOW) jumped more than 15% after the data-analytics software surpassed analyst expectations and delivered outstanding growth metrics in its fiscal 2022 third-quarter report.

Third Quarter Results

For the quarter that ended on October 31^st, revenue skyrocketed 110% YoY to $334.4 million which is well above Wall Street's estimate that called for 305.6 million. In the previous quarter, revenue increased by 104%. The cloud data leader continued to enjoy the broad international expansion. Europe, the Middle East, and Africa (EMEA) segment saw its revenue surge 174%, while sales in its Asia Pacific/Japan (APJ) division soared 219% due to industry-wide adoption. Snowflake has thrived due to a powerful combination of new account growth and increased sales to existing customers. Its customer base grew 52% to 5,416, while its net revenue retention rate stood at 173% which is nothing short of exceptional.

The company's net loss shrank from last year's $168.9 million to $154.9 million. Although the company is not yet profitable on a GAAP basis, it produced an adjusted operating profit of $8.5 million for the very first time, along with a free cash flow of $9.5 million.

Financial Services Data Cloud Solution

During the reported quarter, Snowflake announced it is partnering with Citi (NYSE:C) to provide a frictionless solution for post-trade processes. By joining forces, Citi will gain Snowflake's powerful and secure data sharing and multi-party permissioning capabilities whereas it will benefit from Citi's extensive expertise with a network that spans over 60 markets. Citigroup analyst Tyler Radke expects the software company to sign even bigger deals in the future as corporations increasingly invest in their data-analytics capabilities.

Fourth Quarter Guidance

Product revenue guidance is expected to be between $345 million and $350 million, above the FactSet consensus estimate of $315.9 million, translating to YoY growth between 94% and 96%.

An Upgraded Full-Year Guidance

Management was able to boost its full-year forecast due to post impressive results and ongoing positive sales trends. For the full 2022 fiscal year, Snowflake expects product revenue to come in the range between $1.126 billion to $1.131 billion, representing YoY growth between 103% and 104%.

All in All, a Remarkable Performance

The latest results merely reflect the ongoing transition from physical data centers to the Data Cloud. Snowflake's top line was boosted by the strong adoption of its cloud-native solutions by customers across industries including media, technology, financial services, and health care.

Still a ‘Story Stock' but One With Outstanding Growth Prospects

Although it still hasn't reached profitability, Snowflake has been growing revenue in triple-digit rates over the past eight quarters. Even before going public in September, what was the largest software IPO at the time, Snowflake carved out a distinct niche that helped it be in the right place, at the right time as enterprises needed cloud-based storage that must be accessible from numerous locations simultaneously.

Snowflake has addressed those concerns, allowing for more flexibility and ease of use. Although there is still no earnings track record, the potential indicated by outstanding revenue growth and product development is what its strong prospects are being built upon.

Growing Beyond the Pandemic

During the pandemic, cloud storage and cloud computing became necessary for businesses to simply survive the era of "home offices" but even after the initial COVID-19 boost, the need of companies to increase productivity continued rising dramatically. This trend allowed Snowflake to be one of the few cloud and internet companies that only got better in 2021 with revenue growth in Q3 remaining in the triple digits as it continues to gain large customers at an impressive pace.

Digital transformation is a secular trend driving an explosion of data, which is fueling Snowflake's results. In the latest reported quarter, Snowflake grew product revenue 110% YoY, with 173% net revenue retention, RPO growth of 94%, and achieved non-GAAP operating profitability for the first time.

Competition

Snowflake is going against no other than Alphabet (NASDAQ:GOOGL), Microsoft (NASDAQ:MSFT), and Amazon (NASDAQ:AMZN). However, one of the biggest mistakes that investors make is to assume "competition" will automatically impair a company's growth but this is only the case for industries that have ceased growing or are shrinking.

Snowflake supporters believe the Data Cloud market will become far larger than anyone can imagine due to the ongoing trend of both the public sector and private companies undergoing digital transformation, combined with the rise of IoT and 5G. Moreover, they are also betting on Snowflake being a leading player in the emerging Data Cloud market that is being built to handle all that data created by both companies and individuals.

Only time will show if that pie will be big enough for multiple players to grow and be winners. Meanwhile, Snowflake continues to add an impressive set of enterprises into its ecosystem.

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