The slowing economy and the plunging stock market may be at the top of the minds of most businesses, but smart companies with long-term focus are not getting bogged down by these near-term concerns. On the contrary, they're marching toward their goals with conviction and further extending their lead as competitors may take a more conservative posture.
Snowflake's (SNOW 3.36%) recently announced acquisition of Mobilize.Net's SnowConvert software platform is a great example. While all the details of the acquisition are not yet available and the news hasn't caught much attention, this is a move that should excite Snowflake's current and future investors. Here's why.
NYSE: SNOW
Key Data Points
Making it easier for customers to move to Snowflake
Snowflake's data cloud allows enterprises to assemble and analyze vast amounts of disparate data into a single unified data repository. With Snowflake, customers are breaking down the data silos within their organizations and are able to make smart data-driven decisions in a timely manner.
Databases have existed in various forms for decades, and businesses have traditionally opted for industry incumbents such as Oracle, Microsoft, and Teradata to store their data. Snowflake, however, with its one-stop-shop cloud-based data platform, ease of operation, high performance, and rich collection of tools, has quickly become a high priority for businesses. It is not necessarily replacing the traditional databases in entirety, but it has become a top contender for the organization and analytics on large amounts of data. As of Oct. 31, 2022, the company had amassed 7,292 customers and 287 of them were paying over $1 million in trailing-12-month revenue.
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The first step for the majority of the enterprises adopting Snowflake is to migrate their existing data from a divergent set of data stores into Snowflake's data cloud. Migration of data and the associated software code -- irrespective of what the source and destination platforms are -- is one of the most complex and cumbersome technology tasks. It involves meticulous planning, analysis, and software development that if not done properly, can lead to huge amounts of rework, additional cost, and delays.
Snowflake announced last week that it is planning to acquire Mobilize.Net's SnowConvert software tools that simplify and automate the data migration process for its customers. Snowflake partners with a number of companies that offer such toolsets, and Mobilize.Net has been one of those partners. SnowConvert has translated 1.5 billion lines of software code embedded with traditional databases in their migration to Snowflake, and Snowflake, as a company, seems to have gained a high level of confidence in SnowConvert.
With the acquisition, Snowflake can continue to enhance SnowConvert's data migration tools, integrate them more effectively in the Snowflake data cloud, and ultimately, further simplify a potentially burdensome and costly task for its new customers.
Keeping eye on the long-term goal
Snowflake has set the goal of generating $10 billion in annual revenue by fiscal 2029 with a long-term, year-over-year revenue growth rate of 30%. And the company wants to stay on that growth trajectory while generating 25% adjusted free cash flow. Those are lofty goals, but Snowflake has built an excellent foundation. The company has grown its clients across a diverse set of industries. In the third quarter of fiscal 2023 -- ending Oct. 31, 2022 -- total customers grew 34% year over year and customers paying over $1 million grew 94%. While the revenue growth has slowed relative to historic rates, revenue was still up 67% year over year. Snowflake continues to maintain an industry-leading dollar-based net retention rate -- the measure of how much existing clients spent over the previous year -- of 165%. Finally, the company also improved free-cash-flow generation year over year.
Snowflake sees a big market opportunity for its services, estimated at $248 billion. At its projected revenue of $248 billion for fiscal 2023, there is a big runway ahead for the company.
The acquisition of SnowConvert is an especially savvy move in the broader context of the company's long-term objectives. Making the data migration process easier for its customers will make Snowflake even more attractive to new customers. Also, faster data migration will allow customers to start utilizing Snowflake's platform faster, ultimately generating revenue sooner.
As of Oct. 31, 2022, Snowflake had almost $4 billion in cash and short-term investments with no long-term debt. That strong balance sheet, high revenue growth, and improving profitability make Snowflake highly resilient even in the face of tough macro conditions. And these features also give the company the confidence to move forward with key acquisitions such as SnowConvert to further strengthen its position.
How should investors approach Snowflake?
Snowflake is executing at a high level and has a tremendous opportunity ahead of it. But the market realizes that and is placing a high premium on its shares. While shares are trading close to their lowest valuation since the company went public, its current price-to-sales ratio of over 25 still has very high expectations priced in. Taking a small position now and adding shares incrementally over time -- contingent on the company's performance -- is a balanced approach.
Not many are taking notice of the news of Snowflake's acquisition. But savvy investors watching the company closely realize that Snowflake is focused on its long-term performance and executing steadfastly. Shares may seem expensive, but investing now is likely to produce handsome rewards in the long term.
