Snowflake’s ‘nearless flawless’ execution got the stock of another upgrade

Another week, another upgrade for parts of Snowflake Inc., which has won new fans on Wall Street amid optimism about the company’s execution, opportunities, and cheaper value.

Jefferies analyst Brent Thill became the latest to upgrade Snowflake’s SNOW stock,
Tuesday, join a JPMorgan analyst who did it last week and a Canaccord Genuity analyst who started the trend the week before that. The stock rose more than 2% in premarket trading on Tuesday.

“The foundations remain solid and implementation has been virtually flawless in many consecutive quarters, led by an all-star management team with a proven track record of scaling software businesses,” Thill wrote, in raising its rating on Snowflake stock to buy from hold. and boosting its target price to $ 200 from $ 125.

In his view, Snowflake bears a resemblance to the “best stories on the software platform” including Salesforce Inc. CRM,
ServiceNow Inc. NOW,
and Datadog Inc. DDOG,
Additionally, Snowflake is “growing faster than its peers at a similar rev scale,” Thill wrote, highlighting that the company grew revenue more than 100% in fiscal 2022, compared to growth in the 40 % range for Salesforce and ServiceNow and in the 70 % range for Datadog when they were in similar proportions.

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“While SNOW is among the fastest growing names in software (with consistent triple digit growth in recent Qs), it has achieved such growth while rapidly improving unit economics and operating leverage,” Thill wrote. . He noted that the company’s “disciplined investments” help improve its margins, as the company posted a 12% free-cash-flow margin in the 2021 calendar and expects to reach 16% in the 2022 calendar, as well. well 25% in the 2028 calendar.

Plus, he sees more growth opportunities in the future. “The management team, which has previously brought ServiceNow to its enormous scale, believes that the market opportunity in Snowflake is greater than ServiceNow (currently at $ 100B+ market cap),” he wrote.

Thill sees an “attractive entry point” for those looking to invest in Snowflake following a nearly 60% decline so far this year. Snowflake is now trading at a valuation 16 times the value of the enterprise in calendar 2023 revenue estimates, at 54% growth. For comparison, Datadog and Zscaler Inc. ZS,
with the same multiple but at a lower growth rate, Thill pointed out.

“On the downside, we recognize the potential for further short-term volatility and if the multiple recession continues at current levels, a 10x multiple in CY23E would indicate a price of $ 100,” he acknowledged.


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