Snowflake at $3 Billion in Revenue!! The 5 Top Learnings

Hey everybody. Few tech cloud sassish startups have captivated us more over the last five to six years than Snowflake. Snowflake, Snowflake, Snowflake. Before the explosion of Nvidia and Gen AI, it seemed like all we were talking about. It rocketed to IPO, rocketed to a billion in AR, 2 billion and 3 billion. We all became, or most of us became, acolytes of Frank Slootman, who recently stepped down SEO. But now, for the first time ever at 3.1 billion in AR, Snowflake, still a rocket ship, still epic, but signs of actually being human. Of actually being human. For the first time, growth has slowed to a mere mortal number to just over 32%. At 3.1 billion now that's still incredible. That still means Snowflake is adding a billion of new bookings a year. It's jaw dropping, but it has finally hit some headwinds. Would I bet against Snowflake? Absolutely not. As we'll see in a minute when we get into five plus, really six interesting learnings. A new customer count is still growing over 20% a year. That is jaw dropping. Most of us see our new customer count start to decline as we approach a hundred million, 200 million of AR. It just gets harder and harder to find new customers. But not Snowflake. Snowflake is still bringing in, it's vacuuming in new customers. So even if times are a little bit tougher this year, I'm pretty darn bullish about the next five to seven years. But for the first time ever, Snowflake looks human. So let's talk about 5 + Interesting learnings about Snowflake at 3.1 billion in revenue. So the biggest issue that Snowflake has, and I put issue in quotes, this is still one for the ages. Everyone should aspire to be even, even a fraction as successful as Snowflake. But where they've been hit hardest is NRR is NRR. And NRR is at 131% today, which is incredible. It again, most of us would be thrilled to get anything close to 131% NRR. But for years and quarter after quarter it remained at insane rates, at rates of 160, 170%. And that just fueled incredible growth. If your NRR is 170%, you add 20 to 30% new customers a year. I mean you can, you can approach 200% growth. It was pretty incredible. Snowflake had growth like, like we've never seen. But the story of the last year has Been to manage workloads, to manage spend. And Snowflake is not immune. It has not seen any massive change in logo churn. But customers are being more careful about the data they put in the cloud about managing spend and Snowflake has not been immune to that. NRR remains world class, but dropping from 170% to 131% in about six quarters has definitely put a dent in growth. Number two, Snowflake has done what almost every other cloud leader has done who's seen growth slowed is gotten even more efficient. So they're at, they still remain not even at the rule of 40 in terms of operating margins plus growth. They're north of the rule of 50 even today. So even as growth slowed a bit, they have pushed free cash flow to 29% for every dollar Snowflake charges. Basically 29 cents comes in as free cash flow as new cash. That's pretty impressive. It was very impressive at 25% a year ago, two years ago when no one seemed to care. It was still, it was still pretty, pretty insanely efficient with 12% adjusted free cash flow. But at 29%, Snowflake is on the way to jaw dropping efficiency. So it is reacted in the same way that almost every other Public Cloud and SaaS Leader has, which is getting even more efficient. And we'll talk about how in just a second. Adding headcount. Adding headcount. Now this is an interesting chart. We talked through something very differently with Iran from Monday at Sester annual this year, how is Snowflake getting more efficient? Well, there's two pieces, but the main, the main one is it's not that it's shrinking headcount, it is adding headcount, but more slowly than revenue. This is a story with many cloud leaders. Revenue is up 32% right now, but headcount is up only 19%. They're still adding employees. In fact, they added almost 1200 employees the last year. But that's at a much slower growth rate. In fact about half the growth rate of revenue. That's how you get more efficient. It's not layoffs. A lot of folks have been through layoffs. But layoffs, frankly are a radical solution to tougher times. They are radical. You don't usually need to go through layoffs. If the business is going well, you may need to do one shock layoff. I mean, hopefully you never have to. You should be able to predict. But maybe there's a rationale for doing one shock layoff. But after that, leaders should be able to just manage Hiring, manage headcount. It's not perfect. You may take a hit in innovation later but most leaders are writing this playbook today. They're quietly hiring again. They're hiring just slower than revenue is growing. Point number four with Snowflake and this is again a phenomenon we see with so many leaders in Cloud and SaaS. SMBs are, are in some cases struggling. They're tech, they're smaller tech customers. If you had to do a 2 by 2 of SMB, enterprise and tech, non tech, it's tech SMBs that are struggling the most. They were, they were the rocket ships. In 2021 the unicorns would, would seem to buy anything. But today the unicorns are, you know, 70% of them are struggling. So the tech, the, the tech SMBs so to speak are struggling but the enterprise customers are benefiting from the huge boom in dollars being still being put into cloud and we're seeing that at Snowflake as well as Elastic and Hashicorp and others. So net net, their million dollar plus customers are growing 39% a year. We see this again in the end. Now look, this varies. We, we did a great deep dive with Henry Schuck from Zoom Info we recently and he made the point, look right now these sort of tech tech companies are struggling the most and our non tech and bigger customers are our strongest quadrant of customers. But that changes he says that rotates in and out. I've been doing that for a while. And if you ignore tech, if you ignore your smaller customers, if you ignore your long tail, you may regret it when the pendulum swings back and forth during different cycles. But right now it is swung clearly in favor of bigger buyers for the cloud leader in cloud and sass. And Snowflake is not alone. They've got $461 million customers and that million dollar customer group's growing 39% a year. 0.5. I was pretty impressed by this. Maybe you wouldn't be, but they've got at over 3 billion an hour. They still have an MPS of 67. And why does that impress me? Well a few years ago it wouldn't have impressed me. I would have thought actually you know we do love our leaders and our leaders build more and more software and we rely on them, we buy more from them. I would expect high MPS to last, but the last 18 months I've seen so much rough behavior from account management, from upsell, from threatening customers at renewals that I would have expected in many cases NPS to go down. Not, not necessarily Snowflake but in many others as just the incredible pressure to monetize the base comes when. When new growth is harder to get. But not at Snowflake 67. Now look, I know some of you will say MPS is not a gap metric. It can be gamed. It can be gamed based on who you send it to, how you segment it, how you tweak the questions. All true, all true. But I think if you measure it consistently over time and you ask the same questions and you send it to the same folks, I still think it's very useful. And I think an MPS of this level of 67 is incredibly telling, that you're doing almost all things right by your customers. And this last point, and I think today, I think if things are at all tougher for you or for anyone, this is the most important metric. Revenue growth ultimately is what matters. And actually ultimately profits matter, I guess, at. At scale more than revenue growth at some level, arguably. But your future is your new customer account. Your new customer account. And so many folks struggle as they scale to add new customers. And I see as folks at 50 million, an AR, 100 million or beyond, I see their new customer count drop into the teens. Drop into the teens. And to me, that's a flag. If your new customer count falls below half of your overall revenue growth or if your new customer count drops into the teens or lower. The future looks tough. The future looks tough when your new customer count is growing 10%, even if your NRR is so high or other things are going well that then you can monetize the base for now. You. You need the future. You need the future. And frankly, it just gets hard. It gets hard as again as Iran from Monday, his great Sasser annual presentation, when he said he's like, at some point everyone in the world is using Monday. Well, the good news for Snowflake is everyone in the world isn't actually using Snowflake yet, as amazing as that sounds, because their new customer count is still growing 22%. This bodes incredibly well. And they're, they're coming up on just 10,000 customers. 10,000 customers is a lot, but it is, it is kind of a milestone to check in for ubiquity. Many folks see growth slow around 10,000 customers. We've written this, this data up on Saster, but Snowflake is still growing at 22%. There's another 10,000, another 20, another 30,000 out there for Snowflake. And this is why I don't think anyone would ever bet against Snowflake. But I certainly wouldn't take a slightly more challenging year and bet against this company with 22% new customer growth at 3.1 billion. AR also take it as a challenge. Take it as a challenge that the best companies find ways to keep growing their tam, to keep adding more value to their customers, to keep expanding that number. If Snowflake can grow its new customer base 22% at 3 billion in ARR, I think you could do even better at 5 million, 10 million, 50 million, 100 million in revenue. So anyhow, incredible story. Some tougher times for Snowflake, some tougher times for many of us. But I'm pretty bullish on the fact that NRR will bounce back. Add to that 22% growth in new customers and I predict another five to seven great years for Snowflake. We'll see. We'll check in then.