Snowflake (SNOW -2.79%) and Twilio (TWLO -1.62%) are both high-growth cloud companies that have generated dazzling returns for investors. Snowflake's stock price has more than doubled since its IPO last September, while Twilio's stock has delivered a 23-bagger gain since its IP0 in mid-2016.
Both companies simplify tasks for companies. Snowflake pulls all of a company's data into a centralized cloud-based platform where it can be easily accessed by third-party data visualization apps. That approach breaks down silos and makes it easier to make data-driven decisions.
Twilio's cloud platform handles text messages, phone calls, videos, and other content for mobile apps. Instead of developing those features from scratch, developers simply add a few lines of code to outsource these features to Twilio. Both companies are generating impressive growth, but which one is the better buy?
How fast is Snowflake growing?
Snowflake's revenue surged 124% to $592 million in fiscal 2021, which ended this January, as its number of customers increased 73% to 4,139. Its net retention rate, which measures its ability to retain its existing customers while cross-selling new services, exceeded 165% for the full year.
In the first quarter of fiscal 2022, its revenue rose 110% year-over-year to $228.9 million, its number of customers jumped 67% to 4,532, and its net retention rate hit 168%.
For the full year, Snowflake expects its product revenue -- which accounts for most of its top line -- to rise 85%-87%. Analysts expect its total revenue to rise 88% to $1.11 billion this year, then grow another 64% next year.
Over the long term, Snowflake expects its product revenues to rise from $554 million in fiscal 2021 to $10 billion in fiscal 2029, which would equal an impressive CAGR of 43.6%.
To hit that lofty target, Snowflake expects roughly 1,400 of its customers to generate more than $1 million in annual product revenue by fiscal 2029, compared to only 77 customers in fiscal 2021. It also expects its average revenue from those larger customers to rise more than 60%.
Snowflake expects new features like Snowpark, its developer platform for data engineers and AI scientists; its "Powered by Snowflake" network, which enables companies to build applications directly within its data cloud; and partnerships with other companies to drive that growth.
However, Snowflake remains unprofitable. Its net loss widened from $348.5 million in fiscal 2020 to $539.1 million in fiscal 2021, and more than doubled from $93.6 million to $203.2 million in the first quarter of 2022. Analysts expect its bottom line to stay in the red for the foreseeable future.
How fast is Twilio growing?
Twilio's revenue rose 55% to $1.76 billion in 2020. Its dollar-based net expansion rate, which gauges its year-over-year revenue growth per existing customer, hit 137% for the full year.
In the first half of 2021, Twilio's revenue rose 64% year-over-year to $1.26 billion. That acceleration reflected its acquisition of the customer data platform Segment last November. It posted net expansion rates of 133% in the first quarter and 135% in the second quarter.
Twilio ended the first half of 2021 with 240,000 active customer accounts, up from 221,000 at the end of 2020 and 179,000 at the end of 2019. Analysts expect its revenue to rise 44% to $2.54 billion this year, then grow 31% next year after it fully laps its acquisition of Segment.
Twilio hasn't offered any long-term growth estimates like Snowflake, but it expects its total addressable market to grow from $62 billion in 2020 to $87 billion in 2023. As that market expands, Twilio plans to diversify its platform with more cloud-based services, which could boost its revenue per customer and widen its moat against similar platforms like Vonage's Nexmo and MessageBird.
But like Snowflake, Twilio remains unprofitable on a GAAP basis. Its net loss widened from $307 million in 2019 to $491 million in 2020, then widened again year-over-year, from $194.7 million to $434.4 million, in the first half of 2021. That pressure will persist as Twilio struggles with new application-to-person (A2P) fees from carriers like Verizon, which are now charged whenever a mobile app accesses its SMS network, and mulls more acquisitions to keep expanding.
Twilio should also remain unprofitable for the foreseeable future. But unlike Snowflake, it's slightly profitable on a non-GAAP basis, which excludes its high stock-based compensation expenses.
The valuations and verdict
Neither stock is cheap right now. Snowflake trades at 74 times this year's sales, while Twilio trades at 25 times this year's sales.
I personally like Snowflake's business more than Twilio's, since it's generating stronger growth and faces fewer competitors. Twilio has been relying more heavily on acquisitions to boost its revenue, and those pesky A2P fees could continue squeezing its gross margins.
However, Snowflake's stock is too expensive right now, and it could struggle to hit its ambitious growth targets if Amazon Web Services (AWS) and other cloud platforms upgrade their data warehousing solutions. Therefore, Twilio will remain the better buy until Snowflake's stock finally cools off.