When Snowflake (SNOW 2.69%) went public last September, the cloud-based data warehousing company attracted a lot of attention because it was partially backed by Warren Buffett's Berkshire Hathaway and Salesforce.com (CRM 1.05%). Snowflake's stock price more than doubled on its first trading day, boosting its market cap above $70 billion.
As of this writing, Snowflake is worth about $93 billion -- compared to Salesforce's market cap of $261 billion. Snowflake is still a smaller and younger company than Salesforce, but could it actually surpass its big backer's market cap by 2030? Let's examine their growth rates and valuations to find out.
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The differences between Snowflake and Salesforce
Snowflake and Salesforce both provide cloud services that simplify tasks for large companies. Snowflake's platform collects data from various computing platforms and software applications across an organization, then organizes and stores that information in a central cloud-based location where it can be easily accessed by third-party apps and data visualization services.
Salesforce's main CRM (customer relationship management) platform helps companies manage their sales and support teams. It also provides additional cloud-based sales, marketing, e-commerce, and analytics services. Its data visualization platform Tableau can also organize data from Snowflake.
Snowflake and Salesforce provide different services, but both companies break down silos for large organizations, help them streamline their businesses, and enable them to make data-driven decisions.
Both companies have ambitious long-term goals
This June, Snowflake predicted its product revenue (which accounts for most of its top line) would surge at a CAGR of 43.6% from $554 million in fiscal 2021 (which ended this January) to $10 billion in fiscal 2029.
Snowflake expects its number of larger customers (those that generate more than $1 million in annual product revenue) to rise from 77 in fiscal 2021 to about 1,400 in fiscal 2029, and for its average revenue from those top customers to increase from $3.4 million to $5.5 million.
If Snowflake achieves those goals and grows its revenue by 40% over the following two years, it could potentially generate roughly $20 billion in annual revenue by fiscal 2031, which includes most of 2030.
Last December, Salesforce predicted it would more than double its annual revenue, from $21.25 billion in fiscal 2021 (which ended this January) to over $50 billion in fiscal 2026, at a CAGR of 19%. It expects that growth to be driven by the long-term growth of all of its end markets.
If Salesforce hits that target, then continues to grow at a more modest CAGR of 15% from fiscal 2026 to 2031, it could double its annual revenue again to approximately $100 billion by calendar 2030.
Which company will be worth more in 2030?
Snowflake could grow more than twice as rapidly as Salesforce over the next decade, but most of that growth is already baked into its valuations. Snowflake currently trades at 82 times this year's sales, while Salesforce trades at just 10 times this year's sales.
If Snowflake generates $20 billion in revenue by fiscal 2031 and maintains its current price-to-sales ratio, it could be worth a whopping $1.6 trillion by the final year. If Salesforce generates $100 billion in revenue by fiscal 2031 and trades at 10 times sales, it could be worth $1 trillion.
However, it seems highly unlikely Snowflake can maintain a price-to-sales ratio of more than 80 for nearly a decade as its revenue growth decelerates to about 40% per year. If it trades at a more reasonable (but still frothy) price-to-sales ratio of 40 in fiscal 2031, it would be worth about $800 billion.
Meanwhile, investors might pay a slightly higher premium for Salesforce, since it's consistently profitable by GAAP and non-GAAP metrics and operates a much larger and diversified business than Snowflake. Therefore, Salesforce could be worth a lot more than $1 trillion by 2030.
Look beyond the market caps
I doubt Snowflake will be more valuable than Salesforce by 2030. But if Snowflake hits its long-term targets, its stock could generate much bigger gains than Salesforce over the next 10 years.
However, Snowflake also faces more competition than Salesforce -- especially from similar data warehousing solutions from Amazon Web Services (AWS) and Microsoft's Azure. Salesforce leads the cloud CRM market by a wide margin, and it can leverage that dominance to expand its other cloud services.
Both of these stocks could head higher over the next decade. However, Snowflake will remain a riskier play with bigger potential gains, while Salesforce will provide a much better balance of value and growth.
