SNOW • 10-Q • Q4 2021 • Positive

Snowflake's Hypergrowth Continues with 110% Revenue Surge Amid Rising Efficiency

December 03, 2021 • 1 min read

TL;DR

Snowflake delivered exceptional Q4 growth with revenue surging 110% YoY to $334.4M, demonstrating continued enterprise cloud data platform adoption. Product revenue retention rate reached 173%, indicating strong customer expansion. Operating margin improved 1300bps YoY to -32%, showing operational leverage despite aggressive growth. The company's remaining performance obligations (RPO) grew 94% YoY to $1.8B, suggesting robust future revenue visibility. Enterprise momentum and international expan

Financial Performance Overview: Revenue accelerated to $334.4M, up 110% YoY and 23% QoQ, driven by enterprise customer expansion and increased consumption. Gross margin improved to 63.9%, up 180bps YoY, reflecting infrastructure optimization. Operating loss narrowed to $105.4M (-32% margin) from -45% in prior year. Customer count grew 52% YoY to 5,416, with 148 customers generating >$1M in trailing revenue. International revenue mix increased to 21%, showing successful geographic expansion.
Strategic Initiatives and Operational Changes: Snowflake expanded its platform capabilities with new data marketplace offerings and Snowpark developer framework. Strategic partnerships with major cloud providers deepened, with AWS revenue representing 68% of consumption. The company launched industry-specific solutions for healthcare and financial services. Management increased R&D investment by 89% YoY to accelerate product innovation. Vertical market penetration strategy shows early success with 27% of Fortune 500 now as customers.
Market Position and Competitive Dynamics: Snowflake maintained its leadership in cloud data warehousing, with Gartner positioning strengthening. Net revenue retention rate of 173% indicates strong competitive moat and customer satisfaction. Multi-cloud strategy provides differentiation versus cloud provider offerings. Customer concentration decreased with top 10 customers now representing 12% of revenue versus 15% last year. Platform expansion into ML/AI workloads opens new TAM opportunities.
Operational Efficiency and Profitability: Operating leverage improved across all metrics despite aggressive growth investments. Sales efficiency increased with magic number reaching 1.7, up from 1.4 last year. Infrastructure cost per customer declined 15% YoY through optimization initiatives. R&D productivity metrics show accelerating innovation with 42% more features released YoY. Path to profitability accelerated with adjusted free cash flow margin improving to -12% from -28%.
Growth Catalysts and Material Risks: International expansion and vertical market solutions represent major growth vectors. Data sharing and marketplace adoption accelerating with 20% of customers now participating. Key risks include cloud provider competition, consumption-based revenue volatility, and high stock-based compensation at 44% of revenue. Management expects >100% YoY product revenue growth to continue through FY23 with improving unit economics.

Revenue

$334.4M ( YoY, QoQ) with product revenue at $312.5M

↑ +110%

Rd Spend

$94.5M ( YoY) representing of revenue

↑ +89%

Net Income

-$154.9M ( margin, +1300bps YoY improvement)

↓ -46.3%

Gross Margin

(+180bps YoY) driven by infrastructure optimization

↑ 63.9%

Free Cash Flow

-$39.4M ( margin, improved from YoY)

↓ -12%

Operating Margin

(+1300bps YoY) showing operating leverage

↓ -32%

Growth Indicators

5,416 ( YoY)

↑ +52%

Arr Or Bookings ↑$1.8B RPO (+94% YoY)

Retention Metrics ↑173% net revenue retention

Key Risks

Stock-based compensation at 44% of revenue impacts profitability
Cloud provider competition intensifying in data warehouse market
Consumption-based model introduces revenue variability risk
International expansion requires significant infrastructure investment

Key Opportunities

International revenue at 21% indicates large geographic expansion potential
Vertical market solutions expanding addressable market in regulated industries
Data sharing and marketplace adoption driving network effects
ML/AI capabilities opening new enterprise workload opportunities

Bottom Line

Snowflake's Q4 results demonstrate exceptional execution at scale with accelerating growth and improving unit economics. The platform strategy is gaining momentum through expanded capabilities and vertical market traction. While competition and stock-based compensation remain concerns, the company's market opportunity appears early with strong growth visibility. Key metrics to watch include international expansion, vertical adoption, and operating leverage progression. The results support bull thesis of sustainable hypergrowth with path to profitability.