Analyst Note| Julie Bhusal Sharma |
No-moat Snowflake finished 2022 with a mixed quarter, delivering impressive net revenue retention rates and beating our top-line growth, operating margin, and GAAP earnings per share estimates. Encouraging results were contrasted with a more conservative outlook than the market was expecting, which led to the stock plummeting by over 20% after hours. The conservatism was a result of the fact that Snowflake's revenue model is consumption based and thus harder to predict. Nonetheless, we are confident that Snowflake's future after 2023 will be strong--because even though a consumption model does not formally lock in revenue for a set amount of time (like in a subscription model), switching costs act to invisibly create lock-in in such models--and we see Snowflake as exhibiting strong roots of this moat source (as seen in its outstanding net revenue retention figures). In addition, the moderate outlook was much closer to our former forecasts than the market's, leading us to maintain our fair value estimate for Snowflake at $295 per share. This places Snowflake in 4-star territory, making it an attractive buy, in our view.