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We live in a world full of data. The advent of the Internet ushered in the current era of digital data collection. And with the advent of cloud computing, storing and accessing this information has become more efficient.
Well, cloud data company snowflake (snow -1.70%) It’s easy to leverage this digital information and take action based on the insights it provides. So it may not be surprising that Snowflake stock hit a 52-week high of $205.97 on January 23rd.
As of this writing, the stock is still near highs, which begs the question: Is Snowflake stock worth buying now? Investment decisions are not easy, but by digging deeper you can arrive at the answer.
Snowflake’s strength in data in the zettabyte era
Snowflake is in an advantageous position because it specializes in data storage, management, and analysis. There is so much digital data in the world today that it is measured in zettabytes, where 1 zettabyte equals 1 trillion gigabytes.
We live in this “zettabyte era” of data, and only advanced features like those offered by Snowflake can manage this kind of volume. That’s because data can come from different sources and in different forms. Some of this is called unstructured data.
Approximately 80% of the world’s data is unstructured. This means that the data has no predefined structure or format, making it difficult to store and use.
This is a pain point for many businesses, leading to demand for Snowflake’s products that can address these data challenges. In turn, this led to tremendous revenue growth for the company.
In its fiscal third quarter, which ended Oct. 31, Snowflake had revenue of $734.2 million, a 32% increase from the year-ago period. This is just the latest quarter in Snowflake’s multi-year sales growth streak.
Data by YCharts. TTM = trailing 12 months.
This growth is expected to continue due to increased remaining performance obligations (RPO). RPO represents contract sales with customers that will be billed and recognized as revenue in future periods.
RPO helps evaluate a company’s future revenue opportunities. RPO for the fiscal third quarter was $3.7 billion, an increase of 23% from $3.0 billion a year ago.
Additional considerations for Snowflake
Another tailwind for Snowflake is secular trends in artificial intelligence (AI). With the advent of this technology, the demand for data will only increase. AI software requires algorithms to be fed large amounts of high-quality data in order to perform tasks and make good decisions.
Because Snowflake provides that data, its products are likely to continue to be in demand as the AI market blossoms over the next few years. CEO Frank Slootman said: “There is no AI strategy without a data strategy. The intelligence we all aspire to is in the data.”
Snowflake’s revenue growth has been impressive, and its free cash flow (FCF) has also been growing steadily. This tells you how much cash is available to invest in your business, pay off debt, and buy back stock. In the fiscal third quarter, the company’s adjusted FCF increased 70% year-over-year to $111 million.
However, despite its strong revenue and FCF growth, Snowflake is not profitable. The company ended the third quarter with a net loss of $214.7 million. To make matters worse, this was up from the prior year’s net loss of $201.4 million.
Additionally, Snowflake uses other cloud computing providers such as: microsoft, to operate its platform. These providers may affect Snowflake’s ability to achieve profitability, including by increasing prices.
To buy or not to buy Snowflake stock?
In addition to these risks, there is also the question of whether the stock is worth buying at its current price. The decision is a bit murky, with the stock currently nearing a 52-week high.
One thing to consider is that stock prices are rising. The company’s stock debuted at $245 in 2020, so investing now could put you in a better position than those who bought at the IPO price.
And the average price target for Snowflake stock by Wall Street analysts is $220.79. So if Wall Street’s estimates prove correct, there will be some gain.
Given these considerations, as well as the strong demand for data in the AI industry, management’s ability to successfully capture that demand with their products, rising FCF, and the fact that stocks are in a new bull market. will be combined. To get people to buy Snowflake. And as the AI market grows, we will continue to hold the stock for the long term.
With stock prices soaring in recent months, it’s best to use dollar-cost averaging when purchasing. Invest a small amount now and add to your position in the event of a future price drop.
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