Cloud-based data warehousing company Snowflake is taking the market share of legacy incumbents like IBM and Oracle. Snowflake was built on Amazon Web Services in 2014 and has since significantly expanded its platform to include workloads beyond data warehousing. In just four years, Snowflake’s sales grew from $100 million to more than $2 billion and is expected to continue growing. The company is disrupting the siloed and structured data landscape by using database management, data analysis, machine learning, cybersecurity, and data sharing. In addition, Snowflake’s Marketplace allows customers to combine internal and external third-party data products for better decision-making.
Snowflake’s market share is expected to grow as database management spend is predicted to increase from 13% to 17% by 2026. Gartner estimates that the total addressable market for cloud data platforms could reach $248 billion in 2026, making Snowflake an attractive investment option for long-term investors.
Teradata and Oracle are Snowflake’s competitors, but their data sets are siloed and structured, while Snowflake’s platform disrupts siloed data and supports all workloads within its data cloud. Snowflake is the most relevant cloud platform for machine learning and data analytics, with early stage adoption of these services presenting significant growth potential.
Snowflake operates on a consumption-dependent revenue model, and enterprises may postpone cloud migration projects, which could negatively impact Snowflake’s growth in the short term. Additionally, Snowflake faces competition from hyperscalers including Amazon, but the company offers a comprehensive end-to-end platform covering data warehousing, data lakes, data science, data analytics, and data application development.
The forecast for Snowflake’s FY24 sales is a 34% increase in product sales, and the company expects to add 1,000 employees in the same period. Snowflake aims to achieve $10 billion in sales in FY29, implying a compound annual growth rate of 36% over the next several years.
In a two-stage DCF model, the present value of cash flow to the firm over the next 10 years is estimated to be $8.9 billion, with a terminal value of $67 billion. Therefore, the total enterprise value is estimated at $76 billion. The fair value of Snowflake’s stock price is estimated to be $245, according to the DCF model estimation.
Snowflake possesses significant growth potential and has competent leadership to maintain its competitive advantages in the market. For these reasons, it is an investment option for long-term investors.
