The increase in data obtained by businesses has been drastic. However, many companies aren't prepared to process the sheer volume of data. Businesses recognize that it can be hard to retrieve and analyze all of their data stored in separate clouds. That's where Snowflake (NYSE:SNOW) comes to the rescue. 

Snowflake has the potential to capitalize on cloud transformation over the next five years, and so far, it is seeing rapid adoption. Snowflake has no horse in the race and does not care if your data is stored in Amazon's AWS or Microsoft's Azure. This is the primary driver of success for the company, and I think that this advantage could continue to push it forward. Unfortunately, many high-growth tech companies have been crushed over the past week, and Snowflake is no exception, falling 14% from its all-time high. If the market continues to punish Snowflake, then its shares could become more lucrative, and I might add more shares to my existing position.

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Image source: Getty Images.

1. Growing adoption

Unlike AWS or Azure, Snowflake allows businesses to retrieve data from any data lake easily. Snowflake is a genuinely unbiased data cloud, allowing its customers to access, analyze, and share data from anywhere it's stored. If you stored data in AWS and Azure, you would still be able to retrieve and analyze that information with Snowflake, whereas without it, you would have to go through both AWS and Azure separately. 

This neutrality has made it easier for businesses to store, use, and share their data within their company, and Snowflake has seen massive adoption because of it. It has seen sequential increases in its customer count every quarter for the past year, and its third-quarter customer count rose 52% year over year. Snowflake is even seeing adoption from larger customers, attracting nearly half of the Fortune 500. Its appeal to the biggest enterprises with deep pockets says something about the difficulty and cost of retrieving and analyzing data from multiple cloud sources. 

These customers have been happy with Snowflake's services. The company has a net promoter score (NPS) -- which measures the level of customer satisfaction on a scale of negative 100 to 100 -- of 68. A score of 70 is considered "world-class." AWS has an NPS of 59, showing that Snowflake's neutrality really makes a difference. 

2. Deep customer relationships

The company's competitive advantage is what gets customers in the door, but the ability to expand relationships with its customers is what makes Snowflake so successful. Snowflake's net retention rate is a staggering 173%, meaning customers are spending 73% more today than they did last year. There are two main ways that Snowflake is expanding its relationships with its customers. 

First, companies are able to do more than analyze, store, and share their data within their company. Snowflake also offers a Data Marketplace where customers can buy and sell data to other users. The Marketplace becomes much more valuable to Snowflake customers as more customers join the platform and bring data into the cloud -- creating a strong network effect. Partially because of the Marketplace, the number of customers spending over $1 million with Snowflake grew 128% year over year. 

The second way Snowflake deepens its relationships is by being the main place customers want to store data as they expand. With its competitive advantages and its strong customer satisfaction, Snowflake is becoming the primary place its customers will go when they need to store more data.

Instead of a subscription, Snowflake customers buy contracted capacity and usage, so as a company obtains more data or grows, it can buy more space or usage. The remaining performance obligations -- which is contract value that hasn't been used yet -- nearly doubled year over year to $1.8 billion. 

Priced for perfection?

The market has recognized Snowflake's success and has valued it steeply. As a result, the company's shares trade at nearly 100 times sales, which is astronomical compared to any company. The company is also losing plenty of money: Its Q3 net loss was almost $155 million on a revenue of $335 million. 

This loss improved marginally from the year-ago loss of $169 million, and its net revenue retention has likely led to this improvement. It is spending $190 million on sales and marketing, showing how expensive it is for Snowflake to land customers. However, once it lands them, it can rapidly expand the relationship. Therefore, as Snowflake is able to expand its customer relationships faster than its customer growth, it will see improving net losses.

The company has made progress on this: Customer growth in Q3 was 50%, but total revenue grew 110%, meaning that customer expansion counted for more than half of Snowflake's total revenue growth. 

Snowflake is seeing adoption in its services that are actively disrupting a massive industry that management thinks is worth $90 billion. If the company continues to see customers become more integrated into the Snowflake ecosystem, I think shares could be a steal today compared to five years from now. On the other hand, if shares continue to sink as tech stocks get punished, I will likely double down on Snowflake.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.