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Quick S-1 Teardown: Snowflake

The Snowflake IPO is shaping up to be particularly exciting.  Their S-1 shows very impressive metrics across the board, including explosive revenue growth at scale (growing 174% annually to $264.7 million for the fiscal year ended January 31, 2020), and “land and expand” motion (169% net revenue retention in 2020), making Snowflake one of the fastest … Continue reading Quick S-1 Teardown: Snowflake

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The Snowflake IPO is shaping up to be particularly exciting.  Their S-1 shows very impressive metrics across the board, including explosive revenue growth at scale (growing 174% annually to $264.7 million for the fiscal year ended January 31, 2020), and “land and expand” motion (169% net revenue retention in 2020), making Snowflake one of the fastest growing enterprise companies ever.

In addition to the intrinsic merits of the company, this is yet another example showing how gigantic the market is for data technologies (storage, analytics, machine learning, etc.).  Snowflake estimates its addressable market at $81B.  

We’ve had the pleasure of hosting Snowflake’s former CEO, Bob Muglia, a couple of times at our Data Driven NYC event of the years (see videos below), and it’s been really fun to watch the company grow. 

Here’s our quick take (with Avery Klemmer) on the IPO and company.

HIGH LEVEL THOUGHTS

Some highlights, big and small:

  • Competing head-on with the cloud giants
    • In the early years, Snowflake built their entire business on top of AWS (S3 in particular)… while competing directly with an AWS product (Redshift).  Over time, they added Azure and GCP, all of which have competing products.  
    • This is a remarkable example of the fluid friend/foe relationships you sometimes see in the tech industry – ultimately the cloud platforms benefit a lot from having Snowflake customers use their underlying cloud computing resources, although Snowflake competes with some of their own products. 
    • As many software infrastructure startups and investors worry about getting crushed by the cloud giants, Snowflake shows that it can be done – but it will require an ability to raise very large amounts of venture capital money ($1.4B over 8 rounds) 
    • Worth noting that Snowflake has been able to build a business with solid gross margins (currently at 61%)  – contrary to the perception that infrastructure businesses built on top of public cloud vendors are ultimately just “resellers” of cloud resources.  However, the S-1 makes it clear that the key to this is a lot of scale: “Our improved gross margin during the last four quarters presented is primarily attributable to higher volume-based discounts for purchases of third-party cloud infrastructure, increased scale across our cloud infrastructure regions, and improved platform pricing discipline.
  • Top down GTM velocity: while there may be some level of survivor bias in this statement, Snowflake has grown remarkably quickly (ultimately, this is just an 8 or 9 year old company, founded in 2012) with a fairly classic “top down” enterprise sales model (AEs, inside sales, partnerships).  While they offer 30-days trials, they don’t use much of the GTM tactics that are increasingly regarded as necessary for rapid market expansion for enterprise companies:  bottoms up, free tier, open source
  • Consumption-Based Pricing model: Snowflake has a different take on pricing, as they believe that standard SaaS (subscription) business model “often results in customers paying for unused software. We believe that business models are evolving from a fixed to a utility model, where customers pay only for the resources they consume.”
  • Network Effects: it is fairly rare for enterprise software companies to have network effects.  While I don’t have full clarity on how developed this truly is, Snowflake has a very interesting take around the old idea of a “data marketplace”, where they encourage the sharing of data among Snowflake customers.   “The more customers adopt our platform, the more data can be exchanged with other Snowflake customers, partners, and data providers, enhancing the value of our platform for all users. We believe this network effect will help us drive our vision of the Data Cloud.
  • Some violation of the Silicon Valley narrative:
    • For a youth obsessed culture, it’s worth noting that folks in the Snowflake management team and on the board are in their 50s and 60s. For this type of play, experience matters.
    • Contrary to the founder-friendly narrative of the founder-led public company, Snowflake has had multiple CEOs over the years.  The company’s first CEO was Mike Speiser, a venture capitalist at Sutter Hill Ventures, which incubated Snowflake. From June 2014 to May 2019, the company was run by former Microsoft exec Bob Mugli. Since May 2019, the company has been run by Frank Slootman, formerly of ServiceNow.

Here are the two chats we had with Bob Muglia at Data Driven NYC – really interesting to travel back in time and see how Snowflake thought of itself and the market over the years.

Bob Muglia at Data Driven NYC in April 2015

Bob Muglia at Data Driven NYC in April 2018

S-1 NOTES:

  • Product = storage, compute, cloud services
    • Storage can take in structured and semi-structured data
    • Compute provides concurrent access to data across a team and performs data tasks in low latency way
    • Cloud services is “the brain” that optimizes each use case
    • Multi-cloud across 22 regions
    • 507M avg. daily queries in 2020
    • Est. TAM = $81B
  • Business model 
    • Charge for capacity — either annual capacity arrangements or as on-demand — and recognize as compute is used
      • “On-demand” is < 10% of total revenue — this is comprised of initial customer onboarding and overage consumption
      • If customers stay under, they can rollover some credits
    • Product revenue = storage, compute & data transfer    
    • Because they recognize revenue on consumption, they cannot forecast precisely when a contract revenue will be utilized & therefore recognized
  • Customers
    • 3,117 customers as of July 31 2020, up from 1,547 as of July 31, 2019
    • 7 of Fortune 10 (4% revenue)
    • 146 of Fortune 500 (26% revenue)
    • Capital One = 11% of revenue for FY 2020, down from 17% in FY 2019
  • Key business metrics:
    • Product revenue (FY 2019, 2020): $ 95.7M, $252.2M (164% YoY growth)
      • Ended Q2 at $908M run rate (126% growth)
    • Net retention (YE 2019, 2020): 180%, 169%
    • Remaining performance obligations (YE 2019, 2020): $128M ,$426M
      • This is basically bookings — accounts for all the consumption capacity they have sold but not yet delivered
    • Strategically — they continue to invest in large accounts because they have proven $1M+ ACV and larger accounts have larger budgets, are more likely to be undergoing digital transformation — increased $1M+ ACV customers from 22 Q2 2019 to 56 Q2 2020
  • Financial Results:
    • Revenue (FY19, 20): $96.7M, $264.75M
      • Prices went up 12% (better discounting discipline) 
      • $1M+ ACV customers represent 47% of revenue
    • Gross Profit (FY19, 20): $44.9M, $148.2M (46%, 56% blended gross margin)
      • Product gross margin: 57%, 62% (gross margin improvements came from discounting discipline, higher volume-based discounts with third party cloud providers)
    • S&M Spend (FY19, 20): $125.6M, $293.6M (130%, 111% of revenue)
    • R&D Spend (FY19, 20): $68.7M, $105.2M (71%, 40%)

Note: Fiscal year ends Jan 31

Ownership pre-IPO:

  • CEO, Frank Clootman: 5.9%
  • Altimeter: 14.8%
  • ICONIQ: 13.8%
  • Redpoint: 9%
  • Sequoia: 8.4%
  • Sutter Hill Ventures: 20.3%

Source: http://mattturck.com/snowflake/

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Private Equity

Boston startups expand region’s venture capital footprint

This year has shaken up venture capital, turning a hot early start to 2020 into a glacial period permeated with fear during the early days of COVID-19. That ice quickly melted as venture capitalists discovered that demand for software and other services that startups provide was accelerating, pushing many young tech companies back into growth […]

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This year has shaken up venture capital, turning a hot early start to 2020 into a glacial period permeated with fear during the early days of COVID-19. That ice quickly melted as venture capitalists discovered that demand for software and other services that startups provide was accelerating, pushing many young tech companies back into growth mode, and investors back into the check-writing arena.

Boston has been an exemplar of the trend, with early pandemic caution dissolving into rapid-fire dealmaking as summer rolled into fall.

We collated new data that underscores the trend, showing that Boston’s third quarter looks very solid compared to its peer groups, and leads greater New England’s share of American venture capital higher during the three-month period.

For our October look at Boston and its startup scene, let’s get into the data and then understand how a new cohort of founders is cropping up among the city’s educational network.

A strong Q3, a strong 2020

Boston’s third quarter was strong, effectively matching the capital raised in New York City during the three-month period. As we head into the fourth quarter, it appears that the silver medal in American startup ecosystems is up for grabs based on what happens in Q4.

Boston could start 2021 as the number-two place to raise venture capital in the country. Or New York City could pip it at the finish line. Let’s check the numbers.

According to PitchBook data shared with TechCrunch, the metro Boston area raised $4.34 billion in venture capital during the third quarter. New York City and its metro area managed $4.45 billion during the same time period, an effective tie. Los Angeles and its own metro area managed just $3.90 billion.

In 2020 the numbers tilt in Boston’s favor, with the city and surrounding area collecting $12.83 billion in venture capital. New York City came in second through Q3, with $12.30 billion in venture capital. Los Angeles was a distant third at $8.66 billion for the year through Q3.

Source: https://techcrunch.com/2020/10/23/boston-startups-expand-regions-venture-capital-footprint/

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Private Equity

Alternative Investments/Real Estate: Housing Market Demand Is “Insane”

Speaking to CNBC on Power Lunch, Glenn Kelman, CEO of real estate brokerage Redfin (NASDAQ: RDFN), said he expected the current boom conditions in the housing market to last well into next year. He attributed the high demand to affluent professionals looking for remote homes as well as low interest rates. Also, he thinks some sellers will put their properties on the market only after the presidential election.

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Alternative Investments/Real Estate: Housing Market Demand Is “Insane”

https://platodata.net/wp-content/uploads/2020/10/alternative-investments-real-estate-housing-market-demand-is-insane.jpg

Redfin CEO Glenn Kelman says the boom could last into next year.

Speaking to CNBC on Power Lunch, Glenn Kelman, CEO of real estate brokerage Redfin (NASDAQ: RDFN), said he expected the current boom conditions in the housing market to last well into next year. He attributed the high demand to affluent professionals looking for remote homes as well as low interest rates. Also, he thinks some sellers will put their properties on the market only after the presidential election. (CNBC)

Kelman: Too good to last forever

“This level of demand is absolutely insane. I would expect it to last into 2021, at least,” Kelman said.

Recent data from the National Association of Realtors shows up the strength in the housing market.

Existing home sales shot up 9.4% in September beating expectations. Even though the median purchase price of a home rose approximately 15% year over year, there is just a 2.7-month supply of for-sale homes, showing tight market inventory conditions.

The 30-year fixed-rate mortgage averaged 2.80% for the week ending Oct. 22, down from 2.81% in the previous week and 3.75% a year ago, according to the Freddie Mac Primary Mortgage Market Survey. Therefore, mortgage rates crept even lower in the latest week.

However, “there’s no way it can last forever,” Kelman warned of the bullish conditions.

Canada: Off the charts

Meanwhile, at the northern neighbor, home sales activity in September is described as “off-the-charts.”

Housing data released by the Canadian Real Estate Association (CREA) last week showed a nationwide year-over-year increase in sales of 45.6%.

This was a new all-time monthly record for the third month in a row.

“This is starting to sound like a broken record (about records being broken), but Canadian home sales and prices set records once again in September … as they did in July and August,” said Shaun Cathcart, senior economist at CREA, in a statement.

Real Estate ETFs in the U.S.

The year-to-date performance of some real estate ETFs is shown below:

iShares U.S. Home Construction ETF (ITB)              +24.61%

SPDR S&P Homebuilders ETF (XHB)                          +20.83%

Vanguard Real Estate Index Fund ETF                      -13.91%

It may be noted that despite the boom conditions in housing, real estate ETFs and stocks have declined in recent days.

According to Barron’s, this may be due to yields on the 10-year and 30-year Treasuries moving higher in recent weeks.

Other reasons could be fears of inflation ticking up in the future amidst an improving economic situation.

Nevertheless, the view is that interest rates are likely to remain low for longer. So demand may remain strong.

“Part of what is fueling this boom is that the economy has just split into two and rich people are able to access capital almost for free, so, of course, they’re going to use that money to buy homes,” said Redfin’s Kelman.

Related Story:   Mortgage Rates Set Another Record Low; Real Estate ETFs Could Benefit

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Source: https://dailyalts.com/alternative-investments-real-estate-housing-market-demand-is-insane/

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Private Equity

Asda’s new owner EG Group seeks new leadership ahead of IPO – report

EG Group is owned by the billionaire Issa brothers and the private equity firm TDR Capital, who teamed up for a £6.8 billion takeover of Asda last month

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UK grocer Asda Group’s new owner EG Group is looking for a new chairman and independent directors as it prepares for a £10bn initial public offering, The Timesreports.

EG Group is owned by the billionaire Issa brothers and the private equity firm TDR Capital, who teamed up for a £6.8 billion takeover of Asda last month.

The move comes after Deloitte resigned last week as the company’s auditor because of concerns over the group’s governance and lack of internal controls, according to the publication.

A decision on candidates will be taken before the end of this year, although roles haven’t been finalised yet as the company is in the process of deciding whether to float in the UK or the US, The Times reports.

Write to Barcelona editors at barcelonaeditors@dowjones.com

From Dow Jones Newswires

Source: https://www.penews.com/articles/asdas-new-owner-eg-group-seeks-new-leadership-ahead-of-ipo-reports-20201023

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