 From theCUBE Studios in Palo Alto in Boston, bringing you data-driven insights from theCUBE and ETR. This is Breaking Analysis with Dave Vellante. Snowflake's eye-popping IPO this week has the industry buzzing. We have had dozens and dozens of inbound PR from firms trying to hook us offering perspectives on the Snowflake IPO so they can pitch us on their latest and greatest product. People are pumped and why not? An event like this doesn't happen very often. Hello everyone, and welcome to this week's Wikibon Cube Insights powered by ETR. In this Breaking Analysis, we'll give you our take on the Snowflake IPO and address the many questions that we've been getting on the topic. I'm also going to discuss at the end of this segment an angle for getting into the ground floor and investments, which is not for the faint of heart, but it's something that I believe is worth talking about. Now let's first talk about the hottest IPO in software industry history. At first I want to say congratulations to the many people at Snowflake. You're the big hitters. Yeah, they're all the new Sluteman, Muglia, Spicer, Buffett, Benioff, even Scarpelli. Interestingly, you know, you don't hear much about the founders, they're quite humble. And we're going to talk about that in some future episodes, but they created Snowflake. They had the vision and the smarts to bring in operators that could get the company to this point, so awesome for them. But you know, I'm especially happy for the rank and file and the many Snowflake people where an event like this really can be life changing versus the billionaires on the leaderboard. So fantastic for you. Okay, but let's get into the madness. As you know by now, Snowflake IPOed at a price of 120. Now, unless you knew a guy, he paid around $245 at the open. That's if you got in, otherwise you bought at a higher price. So you kind of just held your nose and made the trade, I guess. You know, but Snowflake's value, it went from 33 billion to more than 80 billion in a matter of minutes. Now, there's a lot of finger pointing going on. This is this issue that people are claiming that it was underpriced and Snowflake left $4 billion in the table. Please stop. That's just crazy to me. Snowflake's balance sheet is in great shape. Thanks to this offering. And you know, I'm not sure jamming later stage investors even more would have been the right thing to do. This was a small float. I think it was around 10% of the company. So you would expect a sharp uptick on day one. I had predicted a doubling to a $66 billion valuation and it ended up around 70. Now, the big question that we now get is is this a fair valuation? And can Snowflake grow into its value? We'll address this in more detail, but the short answer is Snowflake is overvalued in my opinion right now, but it can grow into its valuation. And of course, as always, they're going to be challenges. Now, the other comment we get is, yeah, but the company is losing tons of money. And I say, no kidding. That's why they're so valuable. We've been saying for years that the street right now is rewarding growth because they understand that to compete in software, you need to have massive scale. So I'm not worried in the least about Snowflake's bottom line, not yet. You know, eventually I'm going to pay much closer attention to operating cash flow, but right now I want to see growth. I want to see them grow into their valuation. Now, the other common question we get is, should I buy? When should I buy? What are the risks? And can Snowflake compete with the biggest cloud vendors? I'll say this before we get into it. And I've said before, look, it's very rare that you're not going to get better buying opportunities than day one of an IPO. And I think in this case, you will. I remember back in 2015, I think it was the first calendar quarter and ServiceNow missed its earnings and the stock got hit. And we had the opportunity to interview Frank Slutman, then CEO of ServiceNow, right after that. And I think it's instructive to hear what he said. Let's listen, roll the clip. Well, I think that a lot of the high-flying cloud companies, and obviously we're one of them, you know, we're priced to perfection, right? And that's not an easy place to be for anybody. And, you know, we're not really focused on that. This is a marathon, you know, every quarter is one mile marker. You can't get too excited about, you know, one versus the other. We're really pacing ourselves or building, you know, an enterprise that's going to be here for a long time. You know, and after that, we saw the stock drop as low as $50. Today, ServiceNow is a $450 stock. So my point is that Snowflake, like ServiceNow is going to be priced to perfection. And there will be bumps in the road, possibly macro factors or other. And if you're a believer, you'll have opportunities to get in, so be patient. Now, finally, I'm going to make some comments later, but I'll give you the bumper sticker right now. I mean, I calculated the weighted average price that the insiders paid on the, the S1 that they paid for Snowflake. And it came out to around $6 a share. And I heard somebody say on TV it was $5, but my weighted average math got me to $6. Regardless, on day one of the IPO, the insiders made a 50X return on their investment. If you bought on day one, you're probably losing some money, or maybe about even. And there are some ground floor opportunities that exist that are complicated and maybe risky, but if you're young and motivated or older and have some time to research, I think you'll be interested in what I have to say later on. All right, let's compare Snowflake to some other companies on a valuation basis. This ought to be interesting. So this chart shows some high fliers as compared to Snowflake. We show the company, the trailing 12 month revenue, the market cap at the close of the 16th, which is the day that Snowflake IPO'd. And then we calculate and sort the data on the revenue multiple of the trailing 12 months. And the last column is the year on year growth rate of the last quarter. And I used trailing 12 months because it's simple and it's easy to understand and it makes the revenue multiple bigger. So it's more dramatic. And many prefer to use a forward revenue, but that's why I put the growth right there. You can pick your own projected revenue growth and do the math yourself. So let's start with Snowflake, $400 million in revenue. And that's based on a new-ish pricing model of consumption, not a SaaS subscription that locks you in for a year or two years or three years. I love this model because it's true cloud. And I've talked about it for a while. So I'm not going to dwell on it today, but you can see the trailing 12 month revenue multiple is massive and the growth rate is 120%, which is very, very impressive for a company this size. Zoom, we put Zoom in the chart just because why not? And the growth rate is sick. So who knows how that correlates to the revenue multiple? But as you can see, Snowflake actually tops the Zoom frothiness on that metric. Now, maybe Zoom is undervalued. I should take that back. Let's see, I think CrowdStrike is really interesting here and as a company that we've been following and talking about quite a bit. In my last security breaking analysis, they were at a 65x trailing 12 month revenue multiple. And you see how that's jumped since they reported and they beat expectations. But they're similar in size to Snowflake with a slower growth rate and a lower revenue multiple. So there's some correlation between that growth rate and the revenue multiple sort of. Now, Snowflake pulled back on day two. It was down early this morning, as you would expect, with both the market being off and maybe some profit taking. You know, if you got in an allocation of 120, why not take some profits and play with house money? So Snowflake's value is hovering today. It actually bounced back, it's hovering today. You're just under 70 billion and that brings the revenue multiple down a bit, but it's still very elevated. Now, if you project two X growth, let's say 100% for next year and the stock stays in some kind of range, which I think it likely will, you could see Snowflake coming down to a CrowdStrike revenue multiples in 12 months. It'll depend, of course, on Snowflake's earnings reports, which I'm sure are going to beat estimates for the next several quarters. And if it's growing faster than these others at that time, it should command to premium. You know, wherever the market prices, market is going to go up, it's going to go down, but we'll look at all these companies. I think on a relative basis, Snowflake still should command to premium at higher growth rates. So you can see also on this chart, you got Shopify, Awesome, MongoDB, Twilio, ServiceNow, and their respective growth rates, Shopify, incredibly impressive, Mongo and Twilio as well. ServiceNow is like the old dog in this mix. So that's kind of interesting. Now, the other big question we get is can Snowflake grow in to its valuation? This is a chart we shared with you a bit ago and it talks to Snowflake's total available market and its expansion opportunity there, TAM expansion. This is something we saw Slutman execute at ServiceNow. When everybody underestimated that company's value. And I'll briefly explain here. Look, Snowflake is disrupting the traditional data warehouse and data lake markets. Data lake spending is relatively small. It's under two billion. But data lakes, they're inexpensive and that's what made them attractive. The EDW market, however, the enterprise data warehouse market, it's much, much larger. Now, traditional EDWs, they're big, they're slow, they're cumbersome, they're expensive and they're complicated, but they've been operationalized and are critical for companies reporting and basic analytics. But they've failed to live up to their promise of the 360 degree view of the customer and real time analytics. You know, I had a customer tell me a while ago that my data warehouse, it's like a snake swallowing a basketball. He gave me example where a change in a regulation, this was a financial company, it would occur and it would force a change in the data model in their data warehouse and they'd have to ingest all this new data and the data warehouse choked. And every time Intel came out with a new processor, they'd rush out, they'd throw more compute at the problem. He called this chasing the chips. Now what Snowflake did was to envision a cloud native world where you could bring compute to massive data volumes on an elastic basis and only pay for what you use. Sounds so simple, but technically, Snowflake's founders and those innovations of that innovation of separating compute from storage to leverage the flexibility of the cloud really was profound and clearly based on this week's performance was the right call. Now I'll come back to this in a bit. Now where we think Snowflake is going is to build a data cloud. And you can see this in the chart where your data can be ingested and access to perform near real-time analytics with machine learning and AI. And Snowflake's advantage as we've discussed in the past is that it runs on any cloud and it can ingest data from a variety of sources. Now there are some challenges here and we're not saying that Snowflake is going to participate in all these use cases that we show. However, with its resources now, we expect Snowflake to create new capabilities organically and then do talk in acquisitions that will allow it to attack many more use cases in adjacent markets. And so you look at this chart in the third layer, if that's 60 billion, it means Snowflake needs to extend into the fourth layer because its valuation is already over 60 billion. It's not going to get a hundred percent market share. So we call this next layer automated decision-making. This is where real-time analytics and systems are making decisions for humans and acting in real-time. Now clearly data is going to be a critical part of this equation. Now at this point it's unclear that Snowflake has the capability to go after this space as much of the data in this area is probably going to live at the edge. But Snowflake is betting on becoming a data layer across clouds and presumably at the edge. As you can see, this market is enormous. So there's no lack of TAM in our view for Snowflakes. That brings us to the other big question around competition. Everybody's talking about this. Look, a lot of the investment thesis behind Snowflake is that Slutman and his army, including CFO Mike Scarpelli, and what they did at service now will be repeated. Scarpelli is this operational guru. He keeps the engine running with very, very tight controls. And you know what? Pretty good bet, Slutman and Scarpelli and their team. I'm not denying that, but I will tell you that Snowflake's competition is much more capable than what service now faced in its early days. Now, here's a picture of some of the key competitors. This is one of our favorites, the XY graph, and on the vertical axis is net score or spending momentum. That is ETR's version of velocity based on their quarterly surveys. Now I'm showing July's survey. October is in the works, it's in the field as I speak. On the horizontal axis is market share or pervasiveness in the dataset. So it's a proxy for market share. It's based on mentions, not dollars. And that's why Microsoft is so far to the right because they're huge and they're everywhere and they get a lot of mentions. The more relevant data to us is the position of Snowflake. It remains one of the highest net scores in the entire ETR survey base, not just the database sector. AWS is its biggest competitor because most of Snowflake's business runs on AWS. But Google BigQuery you can see there is technically the most capable relative to Snowflake because it's a true cloud native database built from the ground up. Whereas AWS took a database that was built for on-prem, par Excel, and brilliantly, really made it work in the cloud by re-architecting many of the pieces. But it still has legacy parts to it. Now here's Oracle, Oracle's huge. It's slow growth overall, but it's making investments in R&D. We've talked about that a lot and that's going to allow it to hold on to its customers. Huge base. And you can see Teradata and Cloudera. Cloudera is a proxy for data lakes, which are low cost as I said. At Cloudera, which acquired Hortonworks is credited with the commercialization of that whole big data and Hadoop movement. And then Teradata is in there as well, which of course they've been around forever. Now there are a zillion other database players. We've heard a lot of them from a lot of them this week is on that inbound PR that I talked about. But these are the ones that we wanted to focus on today. The bottom line is we expect Snowflake's vertical axis spending momentum to remain elevated and we think it'll continue to steadily moved to the right. Now let's drill into this data a bit more. Here we break down the components of ETR's net score and this is specifically for Snowflake over time. Now remember, lime green is new adoptions. The forest green is spending more relative to last year than 5% more than last year or greater. Gray is flat spending, the pink is less spending and the bright red is we're leaving the platform. The line up top, that's net score, which subtracts the red from the green as an indicator of spending velocity. The yellow line at the bottom is market share or pervasiveness in the survey based on mentions. Now note the blue text there, that's ETR's number one takeaway on Snowflake. Two H20 spending intentions on Snowflake continue to trend robustly, mostly characterized by high customer acquisition and expansion rates, new adoptions. Market share among all customers is simultaneously growing, impressive. Let's now look at Snowflake against the competition in Fortune 500 customers. Now here we show net score or again, spending momentum over time for some of the key competitors. And you can see Snowflake's net score has actually increased since the April survey. Again, this is the July survey. This was taken, the April survey was taken at the height of the US lockdown. So Snowflake's net score is actually higher in the Fortune 500 than it was overall, which is a good proxy for spend because Fortune 500 spends more. Google, MongoDB and Microsoft also show meaningful momentum growth since the April survey. You know, notably AWS has come off its elevated levels from last October and April. It's still strong, but that's something that we're going to continue to watch. Finally, let's look at Snowflake's market share or pervasiveness within the big three cloud vendors. And again, this is a cut on the Fortune 500. And you can see there are 125 respondents within the big three cloud and the Fortune 500 and 21 Snowflake respondents within that base of 125. And you can see the steady and consistent growth of share. Not huge ends, but enough to give some confidence in the data. Now, again, note the ETR call out that this trend is occurring despite the fact that each of the big three cloud vendors has its own competitive offering. Okay, but I want to stress, this is not a layup for Snowflake. As I've said, this is not service now part two. It's a different situation. So let's talk about that. Look, the competition here is not BMC, which was service now's target. As much as I love the folks at BMC, we're talking here about AWS, Microsoft and Google. Amazon with Redshift is dialed into this. I've said often that they have copycatted Snowflake in many cases and last fall at re-invent we heard Andy Jassy make a big deal about separating compute from storage and he took a kind of a swipe at Snowflake without mentioning them by name, but let's listen to what Andy Jassy had to say and then we'll come back and talk about it. Play the clip. Then what we did is because we have Nitro, like I was talking about earlier, we built unique instances that have very fast bandwidth so that if you actually need some of those datas from S3 for a query, it moves much faster than if you just had to leave it there without that high-speed bandwidth instance. So with RA3s, you get to separate your storage from your compute. If it turns out, by the way, on your local SSDs that you're not using all the SSD on the local SSD, you only pay for what you use. So a pretty significant enhancement for customers using Redshift. At the same time, if you think about the prevailing way that people are thinking about separating storage from compute and letting people scale separately that way, as well as how you're gonna do this large-scale compute where you move the storage to a bunch of a weighting compute nodes, there are some issues with this that you gotta think about. The first is, think about how much data you're gonna have at the scale that we're at, but then just fast forward a few years. Think about how much data you're gonna actually have to move over the network to get to the compute. So, look, first of all, Jassy is awesome. He stands up at these events, like re-invent for two hours, and he connects trends and business to technology. He's got a very deep understanding of the tech. He's amazing. However, what AWS has done in separating compute and storage is good, but it's not as elegant architecturally as Snowflake. AWS essentially has tiered the storage off the cluster to lower the overall costs, but you really, you can't turn off the compute completely. With Snowflake, they've truly separated compute and storage. And the reason is that Redshift is great, but it's built on an on-prem architecture that was originally an on-prem architecture that they had to redo. So, when Jassy talks about moving the data to compute, what he's really saying is our architecture is such that we had to do this workaround, which is actually quite clever. But this whole narrative about the prevailing ways to separate compute from storage, that's Snowflake, and moving the datas, use the word datas, plural, to the compute, it really doesn't apply to Snowflake because they'll just move the compute to the data. Thank you, Hadoop, for that profound concept. Now, does this mean Snowflake is going to cakewalk over Redshift? Not at all. AWS is going to continue to innovate so Snowflake can better keep moving fast, multi-cloud, new workloads, adjacent markets, TAM expansion, et cetera, et cetera, et cetera. Microsoft, they're huge, but as usual, there's not a lot to say about them. They're everywhere. They put out 1.0 products, they eventually get them right because with their heft, they get mulligans that they turn into pars or birdies. But I think Snowflake is going to bring some innovations to Azure, and they're going to get good traction there, in my opinion. Now, Google, BigQuery is interesting. By all accounts, it gets very high technical marks. Google's playing the long game, and I would expect that Snowflake is going to have a harder time competing in Google Cloud than it does within AWS and what I'm predicting for Azure. But we'll see. The last point here is that many are talking about the convergence of analytic and operational and transaction databases. And the thinking is this doesn't necessarily bode well for specialists like Snowflake. And I would say a couple of things here. First is that while it's definitely true, you're not seeing Snowflake positioning today as responding at the point of transaction to say, for instance, influence and order in real time. And this may have implications at the edge, which is going to have a lot of real-time inferencing, but we've learned there are a lot of ways to skin a cat, and we see integration layers and innovative approaches emerging in the cloud that could address this gap and present opportunities for Snowflake. Now, the other thing I'd say is, maybe that thinking misses something altogether where the idea of Snowflake in that third data layer that we showed you in our TAM chart, that data as a service layer, or data cloud, which is maybe a giant opportunity that they are uniquely positioned to address because they're cloud agnostic, they've got the vision and they've got the architecture to allow them to very simply ingest data and then serve it up to businesses. Nonetheless, we're going to see this battle continue between what I've often talked about, these integrated suites and converged databases in the case of Oracle, converged pipelines in the case of the cloud guys, versus the best of breed players like Snowflake. We talk about this all the time and there really isn't one single answer. It's really horses for courses and customer preferences. Okay, well, you know, I know you've been waiting for me to tell you about the angles on ground floor investing, and you probably think this is going to be crazy, but bear with me. And I got to caution you, this is a bit tongue in cheek and it's one big buyer beware. But as I said, the insiders on Snowflake had a 50X return on day one, you probably didn't. So I want to talk about the confluence of software engineering, cryptography, and game theory powered by the underlying value of blockchain. And we're talking here about innovations around a new internet and a distributed web or D-web where many distributed computers come together to form one computer that guarantees trust between two or more users for a variety of use cases, not just financial store like Bitcoin, but that too. And the motivation behind this is the fact that a small number of companies that say five or six today control the internet and have essentially co-opted the major protocols like TCP-IP, HTTP, SMTP, pop three, et cetera, et cetera. And these people that we're showing here in this chart, they're working on these new innovations. There are many of them, but I just name a few here. Olaf Carlson-Whee, he started Polychain Capital to invest in core infrastructure around these new computing paradigms. This gentleman, Mark Nadal, is someone who's working on new D-apps. Tim Berners-Lee, who invented the internet. He's got a project called SOLID at MIT and it emphasizes data ownership and privacy. And of course, Satoshi got it all started when she invented Bitcoin and created the notion of fractional shares. And by the way, the folks at Andreessen Horowitz are actively making bets in this space. So maybe this is not so crazy, but here's the premise. If you're a little guy and you wanted to invest in Snowflake, you couldn't until late in the game. If you wanted to invest in the lamp stack directly in the late 90s, there was no way to do that. You had to wait for Red Hat to go public or to get a piece of the Linux action. But in this world that we're talking about here, there are opportunities that are not mainstream and often they're based, yes, on cryptocurrencies. Again, it's dangerous. There are scams and losers, but if you do your homework, there are actually vehicles for you to get in on the ground floor. And some of these innovations are going to take off. You could get a 50X or 100Bagger, but you have to do your research and there's no guarantee that these innovations are going to be able to take on the big internet giants. But there are people, really smart technologists and software engineers that are young, they're mission-driven and they're forming a collective voice against the dystopian future because they want to level the playing field in the internet. And this may be the disruptive force that challenges today's giants. And if you're game, I would take a look at this space and see if it's worth throwing a few dollars at. Okay, a little tangent from Snowflake, but I wanted to put that out there. Snowflake, wow, closes its first trading week as a company worth $66 billion. Roughly the same as Goldman Sachs, worth more than VMware and the list goes on. I mean, what's more is there to say? Other than, remember, these episodes are all available as podcasts, so please subscribe. I publish weekly on wikibon.com and siliconangle.com, so please check that out. And please comment on my LinkedIn post or feel free to email me at david.volante at siliconangle.com. This is Dave Volante for theCUBE Insights, powered by ETR. Thanks for watching, everyone. We'll see you next time.