Cloud-based data platform provider Snowflake (SNOW 3.69%) went public in September 2020 and the stock shot up impressively following its initial public offering. Then it took a hammering during the broader tech stock sell-off of 2022. As a result, share prices of Snowflake are down nearly 24% since going public.
However, the good news for Snowflake investors is that it has gained some momentum over the past year with gains of 33%. While that's lower than the 60% gains logged by the Nasdaq-100 Technology Sector index in the past year, it won't be surprising to see Snowflake sustaining its recent stock market momentum and delivering healthy gains to investors in the long run.
But can Snowflake stock soar enough to make investors millionaires?
Snowflake's massive addressable market points toward healthy long-term growth
Snowflake's unified data cloud solution allows customers to store unstructured, semi-structured, and structured data on a single platform. Snowflake customers can then use this consolidated data to create applications, derive insights, securely share data, and even protect the data using the company's cybersecurity tools.
Management points out that there is a huge market out there for Snowflake's cloud data platform, which integrates multiple tools such as data warehouse, data lake, data engineering, cybersecurity, and data science into a single interface. More specifically, sees its total addressable market hitting a whopping $248 billion by 2026.
Snowflake has generated $2.6 billion in revenue in the trailing 12 months, which means that it has acquired just 1% of the end-market opportunity on offer. This also explains why the company's revenue is anticipated to grow at a nice clip following the current fiscal year's jump of 35% to $2.79 billion.
SNOW Revenue Estimates for Current Fiscal Year data by YCharts
What's more, analysts forecast Snowflake's earnings will increase at a healthy annual rate of almost 67% for the next five years. The good part is that the cloud specialist is setting itself up to capitalize on this opportunity and deliver the impressive earnings growth that consensus estimates are projecting. It's expected to rapidly increase its customer count and win a bigger share of customers' wallets.
For example, Snowflake reported a net revenue retention rate of 135% in the third quarter of fiscal 2024 (which ended on Oct. 31, 2023). This metric compares the product revenue generated by Snowflake's customers at the end of a quarter to the revenue generated by the same customer cohort in the year-ago period. So, a reading of 135% means that its customers increased their usage of Snowflake's services or adopted more of its solutions.
This explains why Snowflake witnessed solid growth in the number of large customers. The company ended the third quarter of fiscal 2024 with 436 customers who have generated over $1 million in product revenue, which was an impressive increase of 52% from the year-ago quarter. What's more, Snowflake's total customer count was up almost 24% year over year to 8,900 in the previous quarter.
This combination of strong customer spending and the growth in the customer base has allowed Snowflake to create a robust revenue pipeline, which is evident from its remaining performance obligations (RPO) worth $3.7 billion. RPO refers to the amount of contracted future revenue that has not been recognized yet. This metric was up 23% year over year in the previous quarter.
The RPO is substantially higher than the revenue Snowflake generated in the past year, suggesting one reason analysts are predicting healthy growth from the company. More importantly, management is confident it will significantly grow its revenue and earnings over the next five years.
Can solid long-term growth make investors millionaires?
Snowflake management expects to hit $10 billion in annual revenue by fiscal 2029. That would be a big jump over the $2.8 billion analysts are expecting from the company in fiscal 2024. Assuming Snowflake does generate $10 billion in annual revenue after five years, its revenue would increase at a compound annual growth rate (CAGR) of almost 29% over this period.
If Snowflake can maintain a 20% revenue growth rate in the five years after fiscal 2029, its revenue could increase to almost $25 billion in fiscal 2034. Snowflake currently trades at 24 times sales. While that seems expensive in isolation, investors should note that the valuation seems justified considering the terrific revenue growth Snowflake has delivered over the years.
SNOW PS Ratio data by YCharts
As the chart above shows, Snowflake has justified its high sales multiple with impressive growth. Assuming Snowflake trades at a discounted 15 times sales after a decade and generates $25 billion in revenue in fiscal 2034, its market cap could jump to $375 billion. That would be almost 6 times its current market cap, suggesting that it could indeed turn a $200,000 investment into $1 million.
Given Snowflake's massive total addressable market of almost $250 billion, it won't be surprising to see the company cornering 10% of that market after a decade. That's why investors -- even those who may not have $200,000 at their disposal -- looking to buy a growth stock should consider accumulating Snowflake for the long haul.
