Snowflake — a San Mateo, Calif. provider of cloud-based technology for storing and analyzing data — could go public as soon as late June or July 2020, according to my February 13 interview with CEO Frank Slootman.
On February 7, Snowflake raised a whopping $479 million in financing from investors including Salesforce that valued the company at $12.4 billion, according to CNBC.
(I have no financial interest in the securities mentioned)
Slootman – who took the $68 billion (market capitalization) cloud software vendor ServiceNow public in 2012 — said Snowflake enjoyed 174% revenue growth in 2019. That’s a slowdown from last August, when the company was growing at 237%.
But Snowflake is more than four times more valuable than it was in October 2018 when it was valued at nearly $4 billion after raising $450 million. Slootman told CNBC that the company has over $100 million in revenue has “not touched” that money — presumably because Snowflake is generating enough cash flow from operations to fuel its growth. Due to stock-based compensation, however, he told CNBC that Snowflake does not report a net profit.
Snowflake is benefiting from an accelerating corporate shift from on-premise computing to the cloud. As Slootman explained, “After 30 years of investing in on-premise computing, companies are realizing that the excuses for not going to the cloud are bullshit. They are realizing that they have to go to the cloud in order to attract talent because on-premise computing cannot operate modern software.”
Snowflake — which added new 500 customers in the latest quarter — is gaining market share due to its “non-linear scale and performance.” He said, “We can handle thousand-fold increases in database usages from terabytes to petabytes. And we provide customers with unlimited computing power that can reduce compute times from hours or days to seconds or minutes.”
When Snowflake lands new customers, they increase their use of its product very rapidly. “Our clients are increasing their utilization at over 100%. They don’t need contracts and we invoice them on demand which can increase rapidly from $0 to $10 million in revenue,” he said.
Growth in demand is particularly rapid from startups. As he explained, “We work with new digital enterprises that are growing rapidly and no longer need to make large capital outlays for on-premise computing. We are managing abundance. Companies can increase their utilization from terabytes to petabytes without breaking a sweat.”
Slootman believes that the competition is trying to follow in the trail Snowflake is plowing. “We blazed a trail with our architecture by separating data and compute in the public cloud. Eventually competitors will get there. We are winning customers who are switching from on-premise to the cloud and are taking business from SQL vendors such as Oracle and Microsoft,” he said.
A Snowflake IPO will not be the end of its journey. “An IPO for Snowflake will be an entry event not an exit. I’ve done two in my life — he took Data Domain public in 2007 and sold it to EMC in 2009 before taking ServiceNow public. The IPO is an unwritten contract between employees and the company so they can realize their investment,” according to Slootman.
His long-term vision is for Snowflake to pioneer and lead what he calls the “data cloud.” As he said, “AWS operates the information cloud, Salesforce is the app cloud, we want to be the data cloud — a platform that governs and secures private data and can manage rapidly growing workloads. Facebook would be a great customer for our data cloud.”
After $479M round on $12.4B valuation, Snowflake CEO says IPO is next step Ron Miller@ron_miller / 12:28 pm EST • February 9, 2020 Close up of a woman using a digital tablet Snowflake, the cloud-based data warehouse company, doesn’t tend to do small rounds. On Friday night, word leaked out about its latest mega round. This one was for $479 million on a $12.4 billion valuation. That’s triple the company’s previous $3.9 billion valuation from October 2018, and CEO Frank Slootman suggested that the company’s next finance event is likely an IPO, according to TechCrunch. Dragoneer Investment Group led the round along with new investor Salesforce Ventures. Existing Snowflake i investors Altimeter Capital, ICONIQ Capital, Madrona Venture Group, Redpoint Ventures, Sequoia and Sutter Hill Ventures also participated. The new round brings the total raised to over $1.4 billion, according to PitchBook data. All of this investment begs the question when this company goes public. As you might expect, Slootman is keeping his cards close to the vest, but he acknowledges that is the next logical step for his organization. “I think the earliest that we could actually pull that trigger is probably early- to mid-summer timeframe. But whether we do that or not is a totally different question because we’re not in a hurry, and we’re not getting pressure from investors,” he said. He grants that the pressure is about allowing employees to get their equity out of the company, which can only happen once the company goes public. “The only reason that there’s always a sense of pressure around this is because it’s important for employees, and I’m not minimizing that at all. That’s a legitimate thing. So, you know, it’s certainly a possibility in 2020 but it’s also a possibility the year thereafter. I don’t see it happening any later than that,” he said. The company’s most recent round prior to this was $450 million in October 2018. Slootman says that he absolutely didn’t need the money, but the capital was there, and the chance to forge a relationship with Salesforce also was key in their thinking in taking this funding. “At a high level, the relationship is really about allowing Salesforce data to be easily accessed inside Snowflake. Not that it’s impossible to do that today, because there are lots of tools that will help you do that. But this relationship is about making that seamless and frictionless, which we find is really important,” Slootman said. Snowflake now has relationships with AWS, Microsoft Azure and Google Cloud Platform, and has a broad content strategy to have as much quality data (like Salesforce) on the platform. Slootman says that this helps induce a network effect, while helping move data easily between major cloud platforms, a big concern as more companies adopt a multiple cloud vendor strategy. “One of the key distinguishing architectural aspects of Snowflake is that once you’re on our platform, it’s extremely easy to exchange data with other Snowflake users. That’s one of the key architectural underpinnings. So content strategy induces network effect which in turn causes more people, more data to land on the platform, and that serves our business model,” he said. Slootman says investors want to be part of his company because it’s solving some real data interchange pain points in the cloud market, and the company’s growth shows that in spite of its size, that continues to attract new customers at high rate. “We just closed off our previous fiscal year which ended last Friday, and our revenue grew at 174%. For the scale that we are, this by far the fastest growing company out there…. So, that’s not your average asset,” he said. The company has 3,400 active customers, which he defines as customers who were actively using the platform in the last month. He says that they have added 500 new customers alone in the last quarter.
As I wroteSnowflake Says It’s Taking Business From Teradata and IBM Peter Cohan Peter Cohan Contributor Markets Snowflake-CEO-Frank-Slootman-Headshot-8-19 Snowflake CEO Frank Slootman Snowflake It’s kind of sad that a CEO who in four years led a startup to a $3.9 billion valuation can’t enjoy the satisfaction of taking his company public — especially when he gets replaced six months after raising a whopping $450 million in capital. But if that company’s board decided it would be better off in the hands of an executive who had previously overseen a successful IPO, the displaced CEO might end up financially better off — albeit with a wounded ego. This tale of a CEO who can’t get to the promised land is of more than academic interest to shareholders of Teradata and IBM. That’s because the company in question — San Mateo, Calif.-based data warehousing cloud service provider Snowflake — is tripling its revenues in the $35 billion (2023 market size) data warehousing market growing at 8.2%, according to Allied Market Research. Today In: Money And some of that growth is coming out of the hides of Teradata and IBM according to my August 14 interview with CEO since April 2019, Frank Slootman, who provided the names of specific customers who switched from Teradata and IBM to Snowflake. Teradata says that Snowflake is not winning its customers — but Snowflake stands by its claim. IBM did not respond to my question of whether Snowflake had taken some of its customers — though it did provide a comment. PROMOTED Personal Capital BrandVoice | Paid Program Financial Goals By The Decade Oracle BrandVoice | Paid Program In Super Bowl Week, It’s Always Crunch Time For The Chiefs’ Digital Team Personal Capital BrandVoice | Paid Program Financial Goals By The Decade Teradata appears to be treading water as Snowflake booms. After all, Teradata’s stock is down 58% from its August 2012 high of around $78 — sporting a market capitalization of $3.8 billion which is below Snowflake’s October 2018 private market valuation. And in the second quarter of 2019, Teradata revenues of $478 million fell 12% from the previous year’s $544 million, according to Zacks. (I have no financial interest in the securities mentioned in this post). I last spoke with then Snowflake CEO, Bob Muglia, in June 2018 at which point he had raised $473 million — including a $263 million round in January 2018 that valued Snowflake at $1.5 billion. Muglia is a 20 year Microsoft veteran who was responsible for its $16 billion Windows Server, SQL Server, System Center and Azure. Muglia, who joined the company as CEO in 2014, told me that demand for Snowflake had been spiking — its customer count for the year ending January 2018 was up 300%. Capital One — which was recently in the news for getting hacked— is a Snowflake investor and customer. According to Muglia, “Capital One was way ahead of the crowd. In 2013, its CEO decided to move its entire IT operation into the cloud — and that process is likely to be complete this year. The CEO wanted to change the culture of the company. He thought that technology was so meaningful, that Capital One needed to be more integrated into Silicon Valley.” Amazon and Microsoft both offer data warehousing — but Capital One picked Snowflake. “They don’t take full advantage of the cloud and Capital One was looking for a shift forward. They concluded that Teradata could not take them into the cloud. And they picked Snowflake because it could run 250 concurrent data analysis queries — compared to 60 for Teradata — at a much lower price (25% to 30% of what Teradata charges),” Muglia told me. Teradata disputed those claims, and noted it was not in a direct benchmark at Capital One against Snowflake. Teradata also said it had no concurrency limits and that the claim that it couldn’t take Capital One into the cloud was untrue. Teradata added that its pricing is “usually far less expensive when you account for the volume of data and queries being run at scale (which Snowflake can’t match).” In October 2018, Snowflake raised another $450 million valuing the company at $3.95 billion. But by May 1, 2019 Muglia had been replaced as CEO by Frank Slootman. Snowflake’s board emphasized Slootman’s IPO experience. He took ServiceNow public in 2012 and its shares are up about 925% since. He also led the 2007 IPO of Data Domain (the company was acquired in 2009 by EMC). Slootman — who left as ServiceNow’s CEO in March 2017 — credited Muglia with building Snowflake into a company that had “crossed the chasm” with a strong customer base. Indeed in June 2018 Muglia told me the company had “450 employees and was on track for $100 million in 2018 bookings.” Snowflake has enjoyed continued growth in the last 12 months. Revenues were up 237%, employee count doubled to 1,400, and Snowflake quadrupled the number of new customers bringing its total to about 2,400. But Slootman sees opportunities to get Snowflake ready for an IPO. As he said, “We are in scaling mode. We are building an investable model that will yield a predictable yield on resources. We are doing organization building, boosting efficiency, increasing productivity, strengthening our executive staff, and making changes to distribution and R&D. And we are preparing our systems, compliance, and processes for going public.” Slootman said that Snowflake has taken the following customers from Teradata (links to the customer testimonials are included) Capital One, Office Depot, and ARC. Teradata disputes this. According to an August 14 interview with Allen Licitra, Teradata’s Director Analytics and Cloud Competitive Intelligence, “The reality is that Teradata is not losing customers to Snowflake for the very basic reason that Snowflake can’t offer the performance, reliability or scale that Teradata is known for and delivers via a multi-cloud or hybrid cloud environment every day. This is true for all three of the customers Snowflake specifically mentioned to you, one of which is an initial Snowflake investor [I am guessing he means Capital One].” Teradata says that its customers are not expanding their Snowflake commitments. As Licitra explained, “Even when Snowflake trials are begun, we find that our customers aren’t moving the most important (or the most complicated) workloads and if they try, our customers are experiencing a four to sixfold cost increase (vs. what was promised) and significant migration complexity, time and cost.” Snowflake responded to this comment, saying, “We stand by our statement regarding Teradata.” Snowflake says it has won business from IBM Netezza customers OnDeck, Linden Lab, and eXelate/Nielsen. In an August 15 interview, Thomas Chu, Director, Hybrid Data Management, IBM Data and AI, did not respond to the question of whether Snowflake had won these customers. Chu did say, “The Netezza brand was discontinued about 5 years ago. (IBM still supports the two most recent models.) Since then, we have advanced and re-branded the solution, which today offers far greater performance, more scalability, and support for a wider array of environments across hybrid multiclouds (unlike some competitors who have decided to focus a single form factor).” Meanwhile, Snowflake is trading off profitability for growth and its investors are patient about an eventual IPO. As Slootman explained, “Our business is inherently very profitable because our price is higher than our unit cost. But we are unprofitable because we are investing in our sales force which is unproductive as it ramps up but ultimately becomes highly productive. As we add more customers, we amortize those costs over a bigger base.” My guess is that Snowflake will go public and make Slootman, Muglia, and the company’s financial backers a boatload of money.