Cloud-based data warehousing and analytics company Snowflake (SNOW 3.69%) went public with a lot of hype in 2020. With Berkshire Hathaway having bought shares, Snowflake garnered a lot of attention, sending shares soaring to arguably the highest valuation on Wall Street at the time.
But a lot of air has come out of the balloon over the past couple of years, and Snowflake remains 65% below its high today. In some ways, the hype was justified; Snowflake is an innovative company changing how enterprises use their data.
Could the company not only rebound but become a trillion-dollar company by the end of the decade?
How does the math look?
Mathematically, the road to a trillion-dollar market cap is daunting for a company worth just $47 billion today, and its valuation must grow roughly 20-fold to hit that mark. Management's long-term goal is to hit $10 billion in revenue by its 2029 fiscal year, the end of January 2028. A few analysts have estimates for 2030, pegging Snowflake at $15 billion in revenue that year, a reasonable estimate given management's goals.
You can see below that Snowflake's price-to-sales ratio (P/S) has been all over the map since its IPO. In hindsight, growth stocks were in a bit of a bubble in 2020-2021 when low interest rates inflated valuations, so investors shouldn't expect a return to triple-digit P/S ratios anytime soon. To be conservative, let's stick to the low end of this range and assume the stock can maintain a P/S of 20 as it grows larger.
SNOW PS Ratio data by YCharts
Snowflake's $15 billion in hypothetical 2030 revenue at a P/S of 20 is only a $300 billion market cap. Hitting $1 trillion would likely take a combination of a higher valuation and revenue far surpassing analyst expectations.
But Snowflake could still be a stellar investment
Just because it might not hit a $1 trillion market cap in the next seven years doesn't mean Snowflake can't be an excellent investment from today's prices. The business began realizing operating leverage shortly after going public, when revenues started outpacing expenses, making the business profitable.
SNOW Revenue (TTM) data by YCharts
You can see that Snowflake has quickly gone from burning lots of cash (negative free cash flow) to generating strong cash flow, more than 34% of revenue. Management has already begun putting some of its cash to work, announcing a share repurchase program of up to $2 billion. At today's market cap, that's enough to retire 4% of outstanding shares.
Opportunities for growth beyond 2030
Most importantly, just because Snowflake may not grow enough to hit a $1 trillion value by 2030 doesn't mean it can't happen eventually. Data is growing exponentially, and Snowflake's usage-based billing model could fuel years of growth ahead.
The company does just $2 billion in annual revenue on 7,828 customers today. However, there are millions of companies worldwide, and management estimates its addressable market opportunity will grow to $248 billion by 2026. Most companies may opt for services like Snowflake's as data becomes increasingly essential in competing in the global economy. Snowflake is just starting to scratch international opportunities, as 81% of revenue comes from the Americas.
Snowflake also has a long runway ahead in product expansion. It just launched its Manufacturing Data Cloud, which helps enterprises in industries like automotive and energy access data within Snowflake that helps in supply chain and manufacturing applications. Continually building products and serving new markets will be the company's roadmap to becoming a trillion-dollar company. Investors might have their sights set too high for 2030, but Snowflake can undoubtedly be a multidecade winner as a leader in data.
