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Snowflake Is A Swing For The Fences

Mar. 02, 2021 5:09 AM ETSnowflake Inc. (SNOW)22 Comments
Geoff Considine profile picture
Geoff Considine


  • Investors have huge expectations for SNOW's potential.
  • Wall Street's consensus outlook is for mild price appreciation.
  • The annualized option implied volatility, at 62%, is very high.
  • The probability of price declines by year's end is high.
  • There is also a low probability of huge gains.

Snowflake (NYSE:SNOW) is a cloud-based data management and storage provider that went public on September 16, 2020. The share price has been very volatile since the IPO. The market cap at the current share price is almost $74B. The substantial challenge with a company in such close proximity to the IPO is that there is little track record to go on. An additional complexity in the buy/sell/hold decision is the expiration of share lockups, and a big one occurs in March 2021. The market’s consensus outlook on future earnings, as reflected in the share price, has varied dramatically. From a low of about $217 in its first week of trading, the stock climbed to a high closing price of $380 on December 8, 2020. Since then, the stock has been in a fairly consistent decline and is currently at $272.17. The company reports Q4 2020 earnings on March 3rd.

Price history since going public and basic stats (Source: Seeking Alpha)

Wall Street Analyst Outlook

The outlook from Wall Street analysts is nominally bullish, with a consensus twelve-month price outlook that is 11.4% above the current price. The lowest analyst price target is only three percent below the current price. As is common with tech stocks that are well below a recent peak, the most bullish price target suggests that the price will regain some of its lost ground but rarely goes above previous highs. The biggest thing that jumps out from this consensus chart is the question of why anyone would take on a stock this risky for an expected twelve-month price gain of 11.4%.

Wall Street analyst consensus rating and price target (Source: eTrade)

The Wall Street consensus outlook assembled by Seeking Alpha has an almost identical price target as eTrade’s. It is notable that sixteen of the twenty six

This article was written by

Geoff Considine profile picture
Geoff has worked in quantitative finance for more than twenty years. Before entering finance, Geoff was a research scientist for NASA. Geoff holds a PhD in Atmospheric Science from the University of Colorado - Boulder and a BS in Physics from Georgia Tech. Neither Geoff Considine nor Quantext (Geoff's company) are investment advisors. Nothing in any commentary here on Seeking Alpha or elsewhere shall be regarded as advice.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (22)

Eric_Riggs profile picture
SNOW has a great product for sure and I will be an investor when the time is right. For now, it's a very good short opportunity. Dalio manifesto this morning points to more bond selling and the most overvalued stocks (SHOP, ZM, SNOW) have much more downside to come. I would not be surprised to see the yield curve hit 3% in a short-medium time frame. Especially with all that stimulus coming.
@Eric_Riggs Could you elaborate on Dalio manifesto? What did he say?
Eric_Riggs profile picture
@kaszpore he published this on SA yesterday : seekingalpha.com/... . Essentially, he expects more sell-off of US Treasury bonds, becaue of the super low yield, expected inflation and weakening dollar. That should lead to a rising yield curve.
SuperPac profile picture
SNOW has tanked over 45%, from 430 to 230 in a few months. The valuation, while better, still is frothy. I am positively a buyer here if it hits the 125-110 region. I see an upside at that point with enough margin of safety.
prudent 576 profile picture
It's funny when an opinion is given on a stock that is diametrically opposed to 20 ranked analyst's opinions. After my own due diligence in evaluating a stock's future value, to whom should I listen, the unknown contrarian (who is probably shorting the stock) or the 20 ranked analysts?
Geoff Considine profile picture
@prudent 576 This piece is about the contrast between the ranked analysts and the consensus of the options market...not my personal opinion at all.
Pretty naïve approach to options pricing - but doesn't matter - there's really nothing to see here. The stock is going to less than $100 this year.
prudent 576 profile picture
Got to own snow, 2021 revenue +123%, 2022 revenue +84%, 2023 revenue +65%.
So SNOW managed to lose almost as much money as it had in revenues in its last FY, i.e. it lost $539M on revenues of a bit more than $592M. Not easy to do and not something one should brag about. The news that the CEO has a deal where he is paid $108MM per MONTH via options at $8.88 per share each month over a four year period, up to $5.2 Billion through April, 2023, might give shareholders the notion that they are last in line here, as it seems they might be. This company might have a great product that AMZN and MSFT can't replicate or cannibalize (maybe?), but how does one person's efforts justify such huge compensation at the expense of shareholders (this is a REAL expense- forget the non-GAAP BS because these shares turn into REAL money which shareholders will never see) or fellow employees? My answer: The compensation is mostly unjustified - it is engineered.

The lock-out period ends soon.

Lastly, I don't see how this holding squares at Berkshire Hathaway, although the company's entry price still looks very profitable. Can you imagine Howard Buffet creating a scenario where he "earned" $108,000,000 every month from a company with current annual revenues of just $592,000,000? I can't for the life of me, because he is reasonable and intelligent man. And so I don't understand this Berkshire holding.
When CEO looks out for himself/herself before share holders interest, that company, no matter how innovative, is not worth the investment.
Living in Silicon Valley has taught me that there are probably 100 new startups that have a better product then SNOW! They will all trickle in the next few years.
Getting info from the Databases, running ETL's, and then layering in AI have been used for last 50 years, and having worked in the valley, I can tell you, It is not rocket science.
Remember it was all Relational DB, then it was SQL, then it was NO SQL and then it was BIG Data then it was Mongo and then..........A lot of ways to put a lipstick on the pig.
Now it you want something NOT fly by night....There is $ORCL (not a big fan), $MSFT, $GOOGL, $ADBE, $AMZN, $CSCO, $ADSK, $VEEV and tons other really good companies that have stand the test of time.
@bihmurdoch MongoDb is another company that completely befuddles me. Its losses grow even as revenues grow, it relies on convertible debt as equity, and yet its SP is up an amazing percentage. Unless this company is purchased at its elevated SP, I don't see how current shareholders can be rewarded for years. Can you enlighten me?
@Baba's Friend I am not in most of these stocks as they get hyped a lot.
FYI, I spend over 60-70 hours a week on my portfolio management. So If I make investment beyond these rules, that means that I have read a lot about them and have a strong conviction.
Here is my criteria for choosing a stock. Most of these stock may not qualify. $MDB would not qualify.
Has to have for cut 1:
1) Ten years of stock price in stairstep up trajectory.
2) Two years of Ten years could have 10% or less of a drop in price but not sequentially.
These stocks move to cut 2:
1) I should be able to explain business to my 14 year old.
2) Operating margins over 35%, high operating leverage/efficiency
3) Cash flow yield higher than 30 year bonds
4) Revenue growth year over year
5) No turn arounds
6) No dividend (or less than 1% yield)
7) Low debt
These stocks move to cut 3:
1) Technicals (Elliotwaves and Andrew pitchfork ) should show stock appreciation of 20%-30% in the next 2 years.
These stocks move to cut 4 (Buying)
1) Stock vs Options decision
2) If I buy stock I right away right a call (hurdle rate is 20% ROI)
3) If options have lucrative ROI, I buy leaps vertical bull spread. So I would be buying Jan 2023 leap calls (slightly ITM) and sell Jan 2022 leap calls (OTM 20% or so) for RISK MANAGEMENT . For Diagonals, As long as spread is available for 50% of the length of the spread, I go for it. For Simple vertical bull call spread 33% of the length of the spread is preferable.
I hope this helps!!
A friend of mine told me that $SNOW is going to be a 100 bagger. I was thrilled but they way I treat other HyperGrowth stocks, I said " I will wait and let other people make the first 1000%. I will be happy with the remaining 9000%.
For e.g. I got into ADBE in 2016 and have not been unhappy at all.
Buyer sub 200
Don't sleep on Palantir Apollo...
You obviously are knowledgeable but here is what is standard option pricing. The distribution you get from option prices is the risk neutral one not real world. The drift is the risk free rate not real world expected return. In last 5 or so years research has been done on backing out expected return. Curious if you are using that
Any company with little revenues that start trading at $100B+ will have many baggies. Now trades at $80B, p/s 160.

The risk is large to the downside and will need at least a 5 year growth horizon to justify valuation. If the high growth story falters even a little, stock price will crash. A market crash will likely occur within this period and something like Snowflake will crash a lot more than average. Amazon -94% in Dotcom. Good luck trying to hold a company with no P/E at -50% let alone -90%+.
Dantes_Will profile picture
@Entreri Agreed. Compare Snowflake to Teradata, who's public cloud data warehouse is growing 165% y/o, and trading at a ridiculously cheap p/s of 2.5 and a tiny 4.5B market cap. Plus Teradata has a long pedigree of data warehouse and AI experience that's been converted into cloud native products.

I'm betting big that teradata's stock price & market cap will multiply much, much faster than Snowflake's bloated 80B.
jonnyvern profile picture
@Dantes_Will I don't know where you get your numbers for Teradata, but the company is not growing at 165%, and in fact, is barely growing at all. Analysts may be conflicted at times but as a group, they know that $SNOW will grow into its valuation soon enough.
Dantes_Will profile picture
@jonnyvern1 Double check what I wrote - the qualifier is the cloud product growing @165% & 100M+. That's comparable to Snowflake's growth (thought not billings). It's a given their legacy business revenue will decline as those customers convert to cloud.

Problem with Snowflake is that they're still only a piece of a puzzle and lack their own infrastructure & analytics. They'll likely need to acquire someone or spend heavy to build out their own. Meanwhile, Microsoft & Amazon are copying Snowflake's functions & advantages of segregated compute/storage billing. There's a chance Snowflake may not ultimately end up as the dominant data warehouse when the industry matures. It's the leader now, but that's not guaranteed forever.
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