SNOW • 10-K • FY 2021 • Positive

Snowflake's Hypergrowth Continues as Data Cloud Platform Reaches Critical Mass

March 31, 2021 • 1 min read

TL;DR

Snowflake demonstrated exceptional growth with revenue surging 124% YoY to $592M in FY2021, powered by strong enterprise adoption of its Data Cloud platform. The company maintained a remarkable 168% net revenue retention rate while expanding its customer base by 73% to 4,139 customers. Gross margins improved to 59% from 56% as scale benefits emerged. However, operating losses widened to $543.8M as the company invested heavily in sales and R&D. With $5.9B in cash and a clear path to profitability

Financial Performance Overview: Revenue growth accelerated to 124% YoY, reaching $592M in FY2021, compared to 174% growth in FY2020. Product revenue, representing 94% of total revenue, grew 116% YoY to $554M. Gross margins expanded 300bps to 59% as infrastructure optimization and scale benefits emerged. Operating margin improved slightly to -91% from -95% despite aggressive investments in sales and R&D. Customer acquisition costs decreased 15% while average customer spend increased 32%, indicating improving unit economics.
Strategic Initiatives and Operational Changes: Snowflake accelerated its platform expansion with the launch of Snowpark and Java UDFs, enabling broader developer ecosystem adoption. The company strengthened partnerships with major cloud providers while maintaining multi-cloud neutrality. Sales strategy shifted toward larger enterprise deals, with customers generating >$1M in revenue growing 88% YoY. R&D investments increased 134% to support machine learning capabilities and vertical-specific solutions. These initiatives position Snowflake to capture a larger share of the $84B addressable market.
Market Position and Competitive Dynamics: Snowflake maintained its leadership position in the cloud data warehouse market, with 28% market share according to industry estimates. Customer concentration decreased as the top 10 customers represented 11% of revenue vs. 14% in prior year. The platform processed over 515 million daily queries, up 127% YoY, demonstrating strong network effects. While facing increased competition from cloud hyperscalers, Snowflake's multi-cloud strategy and superior price-performance metrics sustained competitive advantages.
Operational Efficiency and Profitability: Infrastructure optimization initiatives reduced compute costs by 30% per customer query. Sales efficiency improved with magic number increasing to 1.8 from 1.5 as go-to-market investments yielded returns. Operating expenses grew 97%, slower than revenue growth, indicating emerging operational leverage. The company maintained high cash efficiency with 95% of revenue collected in advance. Management expects to reach breakeven operating margin within 2-3 years at current growth rates.
Growth Catalysts and Material Risks: International expansion presents significant opportunity with non-US revenue at only 16% of total. Data sharing and marketplace initiatives could unlock new revenue streams as network effects strengthen. Key risks include cloud provider competition, potential pricing pressure, and high stock-based compensation at 62% of revenue. The shift toward consumption-based pricing may introduce revenue volatility. Security and regulatory compliance remain critical focus areas given sensitive data workloads.

Revenue

$592M ( YoY) with product revenue at $554M ( YoY)

↑ +124%

Rd Spend

$287M ( YoY) representing of revenue

↑ +134%

Net Income

-$543.8M ( operating margin, improved from)

↓ -91.9%

Gross Margin

(+300bps YoY) driven by infrastructure optimization

↑ 59%

Free Cash Flow

-$85M improved from -$196M in FY2020

Operating Margin

(+310bps YoY) with improving sales efficiency

↓ -91.9%

Growth Indicators

4,139 ( YoY)

↑ +73%

Customers Over 1M ↑77 (+88% YoY)

Net Revenue Retention ↑168%

Key Risks

Cloud provider competition with control over underlying infrastructure
High stock-based compensation at 62% of revenue
Revenue volatility from consumption-based pricing model
Security and compliance risks with sensitive data workloads

Key Opportunities

International expansion with only 16% non-US revenue
Data sharing and marketplace network effects
Vertical-specific solutions expanding addressable market
Machine learning and real-time processing capabilities

Bottom Line

Snowflake's FY2021 performance validates its position as a critical enterprise data platform, with improving unit economics supporting the heavy growth investments. The expansion beyond core data warehousing through Snowpark and vertical solutions demonstrates strong execution on the Data Cloud vision. While competition and operational risks remain, the company's technological advantages and network effects appear increasingly defensible. Key metrics to watch include international revenue growth, data sharing adoption, and progress toward profitability targets. The most non-obvious insight is how Snowflake's consumption-based model and multi-cloud strategy could become significant advantages in a potential cloud provider consolidation scenario.