With a lot of hype surrounding new IPO Snowflake, some investors may be wondering if they should buy the stock soon, even though Snowflake has already doubled over its IPO price. But are there other opportunities that would give you similar access to the cloud and big data market?
Snowflake definitely appears to be one of the highest-quality cloud software stocks around. It's growing really fast, has a large addressable market, and is well-managed. However, it's not alone in these qualities by any means. After the recent technology sector pullback, many quality SaaS companies have been marked down. Going into the fall, are there better alternatives for your investment dollars?
How does Snowflake compare to other SaaS vendors? Image source: Getty Images.
Close peers to Snowflake
Snowflake is a data warehouse provider that operates purely in the public cloud. The public cloud is one of the biggest technology revolutions of this century; it's completely transformed the way major corporations conduct business.
A number of cloud-focused software stocks have gone public in recent years, with many going onto be multi-baggers and trouncing the overall market's returns. Typically, these companies trade at high valuations, but their high-growth, recurring-revenue models in the sticky sector of enterprise IT have at least somewhat justified their rise.
Even by the standards of the most expensive software companies out there, Snowflake is pricey, though it's also recording some of the best growth. Here's how Snowflake stacks up next to a sampling of 10 other popular SaaS leaders:
|
Company |
TTM Revenue |
Q2 Revenue Growth |
TTM Operating Margins |
Price-to-Sales Ratio |
|---|---|---|---|---|
|
Anaplan (PLAN) |
$398.0 |
26% |
(36.5%) |
19.7 |
|
Atlassian (TEAM -0.22%) |
$1,610 |
28.7% |
0.9% |
26.0 |
|
Datadog (DDOG 0.50%) |
$480.8 |
68.2% |
(0.3%) |
44.3 |
|
DocuSign (DOCU 1.02%) |
$1,160 |
45.2% |
(16.1%) |
32.2 |
|
HubSpot (HUBS -0.01%) |
$762.4 |
24.7% |
(6.5%) |
15.7 |
|
MongoDB (MDB 0.81%) |
$501.6 |
39.2% |
(34.2%) |
24.0 |
|
Okta (OKTA -0.65%) |
$703.7 |
42.7% |
(26.7%) |
34.6 |
|
Slack (WORK) |
$768.1 |
48.9% |
(38.5%) |
18.5 |
|
Twilio (TWLO 1.08%) |
$1,390 |
45.7% |
(26.4%) |
22.8 |
|
Zoom Video Communications (ZM 0.05%) |
$1,350 |
355% |
17.1% |
83.8 |
|
Snowflake (SNOW 2.53%) |
$402.7 |
120.7% |
(86.8%) |
155.6 |
Data source: Yahoo! Finance and Snowflake Form 424B8. All dollar figures are in millions. Table by author. TTM = Trailing 12 month
As you can see, Snowflake is by far the most expensive stock of the bunch, and it's also generating the biggest losses as well, as it invests for growth.
Yet to Snowflake's credit, it is the smallest of the above companies in terms of revenue except Anaplan, which means there is likely more growth potential in Snowflake compared to the others.
The question is how much. At its current nosebleed valuation, Snowflake even makes the high-flying Zoom Video Communications look cheap. After its huge run this year thanks to mass pandemic-fueled adoption, Zoom is growing three times as fast as Snowflake, but trades at "only" 84 times sales, or roughly half of Snowflake's price-to-sales ratio. Zoom is also profitable, whereas Snowflake most definitely isn't. Meanwhile, Snowflake is over three times more expensive than the next-most-expensive SaaS company in Datadog.
Image source: Getty Images.
Some other numbers Snowflake investors should consider
Of course, although all of the above companies are software-as-a-service companies, it's not as if they all play in exactly the same market. Snowflake's market is thought to be bigger than most other niche software applications, and therefore it may have a bigger opportunity. In the regulatory filing, Snowflake claimed its total addressable market was around $81 billion.
As of market close Thursday, Snowflake's market capitalization was around $62.6 billion, or almost as big as its entire addressable market. Of course, it's entirely possible for a company's market capitalization to exceed its addressable market, provided it gains a lot of market share and makes good margins; however, we aren't yet sure about Snowflake's ultimate margin potential, and it's certainly not alone in this market. Snowflake not only competes with legacy data warehouse companies such as Oracle (ORCL 0.22%), but also with data offerings from the very cloud infrastructure giants with which it partners.
Plenty of fish in the sea
I'm not saying that investors shouldn't invest in Snowflake. The company is extremely well-run and has a compelling product; however, since the company has already doubled over its IPO price, it may be time to look at Snowflake compared with the other software companies that trade at (much) lower valuations.
If Snowflake's opportunity still seems more compelling after you've looked at these alternatives, by all means invest. However, the other companies above also have a long growth runway ahead. In terms of allocating your precious investment dollars, make sure you're choosing the right risk-reward for your own investing situation.
