In 1942, Warren Buffett bought his first stock when he was 11 years old, adding three shares of an oil company called Cities Service to his portfolio. That means he's been investing longer than most people have been alive, and since making that first purchase, Buffett has earned a reputation as one of the greatest stock pickers of all time.
With that in mind, he added $735 million in Snowflake (SNOW 2.69%) stock to Berkshire Hathaway's portfolio last year. This move took many investors by surprise as Buffett has historically shied away from young public companies (Snowflake IPO'd in Sept. 2020). But so far, the decision has paid off as Berkshire's stake in Snowflake is now worth over $1.4 billion.
But beyond Buffett's stamp of approval, there are plenty of reasons to like this stock.
Image source: Getty Images.
Snowflake simplifies big data
During the last four years, the average enterprise has seen a 70% jump in the number of applications it uses. This situation is further complicated by the increasing popularity of cloud computing, with the end result being that many organizations generate troves of data across multiple different systems every day.
Snowflake helps these companies integrate, analyze, and unlock value in that data. This allows clients to make more accurate decisions, build data-driven applications, and share data inside and outside of their organization. Moreover, because Snowflake's platform is delivered from the cloud, clients don't have to manage costly and complex infrastructure on site. This accelerates the time to value.
The company also provides tools for governance and security such as encryption, allowing its clients to control access to data according to corporate and regulatory requirements. This makes it possible to share information and collaborate with partners, customers, and suppliers -- all without moving the underlying data.
Currently, management puts the company's market opportunity at $90 billion, but that figure is expected to rise in the years ahead. Suffice it to say, Snowflake has plenty of room to grow its business.
Image source: Getty Images.
Strong financial performance
As this digital transformation has made data more abundant than ever, creating demand for effective data management and analytics solutions, Snowflake's business has grown quickly. Customers across various industries have adopted its data cloud platform.
For instance, financial firms like BlackRock use Snowflake to aggregate and analyze investment portfolios. Restaurants like Chipotle rely on the data cloud to make informed supply chain decisions. And enterprise software tech giants like Adobe use Snowflake to build data-driven marketing applications.
Putting the pieces together, Snowflake has delivered impressive growth in recent years with its customer count quintupling in just two years' time. Of the more than 4,500 customers reported as of the fiscal first quarter, 104 of them generated over $1 million of revenue for Snowflake over the past year. This high-value customer base more than doubled year over year.
|
Metric |
2019 |
Q1 2022 |
|---|---|---|
|
Customers |
948 |
4,532 |
|
Revenue |
$96.7 million |
$712.1 million* |
Data source: Snowflake SEC filings. *For the trailing 12 months ending with Q1 2022.
Snowflake's net revenue retention rate in fiscal 2020 and 2021 was 169% and 168%, respectively. Put another way, the average customer boosted their spending with the company over 60% in each of those years, and management expects that trend to continue through 2022.
That's good for two reasons. First and most obvious, Snowflake's sales rise when its customers spend more. Second, these high retention rates evidence the stickiness of the Snowflake data cloud -- in other words, once a client starts using the platform, they derive so much value from it that they're unlikely to seek out competing services.
The bottom line
Here's the big picture: More enterprises are adopting digital solutions and putting data at the center of their operations. To help with this transformation, Snowflake's platform addresses a range of use cases, from data governance and security to storage and analytics, all of which simplify big data.
More importantly, the company creates tremendous value for its customers, as evidenced by the impressive growth of its customer base and their retention rates. That advantage should help Snowflake capitalize on its $90 billion (and growing) market opportunity in the years ahead, and that's why you should consider adding this Warren Buffett stock to your portfolio.
