SNOW Stock (42% DECLINE)- Why Warren Buffet LOVES Snowflake Stock

0:00 Snowflake started trading on the new york stock exchange last september and its ipo actually generated a lot of hype partly because this is actually the largest software ipo in history another element that contributed to the hype behind snow stock was the fact that warren buffett the legendary warren buffett actually invested 735 million dollars in snowflake stock now snow stock is actually down about 42 from its 52-week high of 429 and it makes me wonder is it time to

0:34 Invest in snow stock on this episode of 9-5 investing i'm gonna break down the bullish and the bearish perspectives behind snow stock and give you my honest opinion about investing in snowflake stock for the long term the first topic that we should cover is what does snowflake actually do to make money at first look snowflake is in the business of providing their customers with a cloud-based data warehouse solution snowflake is providing this infrastructure as a service to more than

1:04 4 000 customers if you are just scratching the surface you might believe that snowflake is actually just providing this data storage service to their customers the snowflake is not just helping their customers store overwhelming amounts of information they're actually also helping their customers analyze and actually derive value from that information have you heard of a terabyte well a terabyte it's 20 21 so i assume most of y'all know but just in case you don't a terabyte is 1

1:32 000 gigabytes well just to give you an idea of the sheer scale of data that snowflake is storing synthesizing analyzing for their customers they're actually dealing in petabytes for the average customer and a petabyte is actually made up of about 1 million gigabytes snowflake is taking these petabytes of data from these companies these corporations they're storing that data and then they're ultimately helping them analyze and synthesize that data into

1:59 Useful insights that can actually be used to help the business make better decisions so clearly snowflake provides a lot of valuable services to their customers that these customers probably would not actually be able to perform on their own or wouldn't financially make sense for them to now i want to briefly talk about the frothy 73 billion dollar evaluation that snowflake currently has and how i've personally come to terms with this valuation also if you are enjoying this video so

2:29 Far please consider smashing that subscribe button or gently tapping the like button i reform of engagement really helps out my channel and i appreciate it now the main criticism that i've heard about snowflake about investing in snowflake stock at these prices is that the company is overvalued and this might actually be a fair criticism given the fact that snowflake actually loses money and uh they actually also have a forward enterprise to sales ratio

2:58 Of about 77 but consider this snowflake actually did increase their customer base by about 73 from fiscal year 2020 to fiscal year 2021 and on top of that their net revenue retention rate actually increased by about 168 percent year over year so not only is snowflake acquiring customers new customers at a rapid pace but their existing customer base is also purchasing more of the services that they provide year over year so there is a reason that snowflake

3:32 Would seem overvalued to a conventional value investor it's because the revenues are growing so quickly and the market commands a premium for this type of revenue growth snowflake is just going to be the type of company that is inherently difficult to value because the revenues are growing so quickly and they have major competitive modes in their software that the average investor is not going to be able to understand snowflake is also a company that is

3:59 Paying for their growth in a sense because you see these impressive revenue growth rate numbers yet they're actually not even turning a profit snowflake has a gross profit margin of 59 but as we move further down the income statement we see that this company spends like crazy on selling general and administrative expenses and this seems to be the reason why snowflake is still losing money in 2021 despite having healthy gross profit margins in other words snowflake is

4:30 Spending more money than the revenue that they are bringing in on expenses that do not directly go into the products or rather services that they are selling snowflakes spent about 655 million dollars on sg a expenses yet they only actually brought in 592 million dollars in revenue for the fiscal year ended january 31st 2021 since that most likely and of course i don't want to oversimplify anything here but most likely if snowflake were to shift its focus from

5:03 Customer acquisition and growth to profitability then the company overall could turn a profit pretty easily in my opinion potential to shift focus is why i do not worry about investing in a technology company that is losing money each and every year as long as they have a healthy gross profit margin they can eventually flip that switch like many of them have in the past and start being profitable now another factor that is worth mentioning that is contributing to snowflakes lack

5:30 Of profitability is going to be their research and development expenses also known as r d expenses they had about 655 million dollars worth of these in fiscal year ended january 2021 while in the same time period they actually only brought in as i mentioned earlier 592 million dollars of revenue it is the same concept here if management decided that they wanted to really dial in they wanted to rein in those r d expenses and just focus on profitability then

6:00 They could pretty easily make that strategic decision but it seems like snowflakes management sees a lot of value in building up those competitive moats in their software so they can remain a dominant player in this industry for the long term i'm actually personally of the belief that snowflake is still probably pretty early in their growth stage as they actually do have a total addressable market of about 80 billion dollars now i do not necessarily want to repeat the same

6:29 Revenue figure for a third time in the same video because i hate redundancy but it is just too relevant to compare the revenue number for 2021 the fiscal year ended 2021 that is to the total addressable market so for a third time snowflake only had 592 million dollars worth of revenue for the fiscal year ended january 31st 2021. some simple math then you will find out that snowflake actually has captured less than one percent of their total addressable market now of course i'm not naive enough to think that snowflake is gonna capture 100 of their total addressable market but can i see the number growing far past one percent maybe 10 20 one day absolutely given the fact that most customers are sticking with snowflake and not only sticking with them but they're actually purchasing more services year over year

7:25 This definitely makes me think that snowflake is gonna capture a lot more of the market than just under one percent where they're at now point is despite the company being worth a whopping 73 billion dollars at the time of recording this video i still think it could be relatively early if you're using a long-term mindset if you have a long-time horizon to invest i'm talking about the mentality where you just buy the stock and you forget about it for

7:52 The next decade because who knows what kind of broad market volatility we're gonna be facing in the near future given the risk of inflation rising international conflicts and all the other stuff going on in the world anyways nine to five gang i think that that's about all that i have to say about snowflake stock for today i really appreciate you watching all the way through as you know it helps the channel please don't forget to subscribe if you haven't already and i hope you have

8:21 A very bullish day if you would like to watch a video about a company that will benefit heavily from the biden administration click the thumbnail on the left if you would like to watch a video about why i believe hylion's hyper truck erx will beat the tesla semi then click the thumbnail on the right