Why Snowflake’s stock is raging like a blizzard in the High Sierra

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Every once in a while a tech company comes in and sparks a massive debate about its future in the market.

As a cub reporter, in 1990 I covered this conversation on Cisco Systems. Businesses had PCs for all of their employees, but did they really need to network them? It turns out it does. The next decade, Google came by promising that his income would grow as fast as the growth of the internet. Indeed. And Facebook’s challenge when it went public in 2012 was whether it would be wiped out by smartphones. Ha ha.

This does not mean that each giant reaches its projected height. Whether it’s Groupon or AT&T Wireless or the dreaded eToys, sometimes the hype just isn’t justified.

Today, the company in the crosshairs is Snowflake, the inventor of the cloud database. I have raved before Snowflake, which also impressed – and attracted investment dollars – from Warren Buffett and Marc Benioff alongside its IPO. The company has a compelling origin story in Silicon Valley, and revolutionizing the use of databases seems like a pretty intoxicating thing. But Snowflake also has a lot of competition from Amazon, Google and others. And her market value is approaching $ 100 billion while she is still losing a lot of money every quarter.

This week was Snowflake’s first quarterly report since its IPO. Customers, who pay per second to analyze their data stored with Snowflake, boosted sales 119% to $ 160 million. For a still growing company, this generated a net loss of $ 1.01 per share. Both numbers were a bit better than analysts’ average forecast, but as we’ve seen with Zoom and Peloton and other tech stocks, that wasn’t enough to impress the first wave of fast, human and algorithmic traders. Snowflake shares initially fell 6%.

Then investors (and journalists) delved into the details. New customers who sign up with Snowflake buy credits, almost like Amazon gift cards, which they can spend later when they start using the service. Snowflake reports these credits not as income, but in a separate category called “remaining performance bonds”. And those RPOs have jumped 240% to almost $ 1 billion. Well compensated CEO Frank Slootman also revealed to analysts that Snowflake recently secured better terms from Amazon and Microsoft for the massive amounts of cloud computing services it purchases from them.

“We’re getting really big discounts,” Slootman told me during a Zoom call from his home office Thursday. “It’s a function of the contract scale. It’s not because we’re so beautiful or anything, ”he joked. Instead of being hurt by its relationships with the big cloud providers, as some feared before the IPO, Snowflake is thriving.

On Thursday morning, the stock rebounded and hit an all-time high, closing at $ 339.89, a gain of 16% and nearly triple its IPO price of $ 120 on September 16.

Why the race? In addition to its RPOs, Snowflake is expanding into new areas of analysis such as unstructured data. These are the vast collections of images or PDFs or other items that businesses have amassed without much organization or metadata. “Our world is overrun with unstructured data in terms of video, audio and PDF,” says Slootman. “It’s not easy. We have to reinvent things… but that’s what we’re fighting for, we love it.

The shareholders hope to continue fighting, that’s for sure.

Aaron Pressman
@ampressman
aaron.pressman@fortune.com

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In the latest episode of the Brainstorm podcast, we discuss how Elon Musk is transforming one industry after another – and why he’s FortuneBusinessman of the Year. Brainstorm’s Brian O’Keefe & Michal Lev-Ram Chat With FortuneAndrew Nusca talks about what makes Musk tick. They also chat with Ken Morris of GM, vice president of electric and autonomous vehicles. While Musk’s You’re here may have started the fire under the electric vehicle market, the scale of GM means it could put a lot more drivers in eco-friendly cars. Listen to the episode here.


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