Saturday, March 5

Snowflake


NEW YORK, March 3 (Reuters Breakingviews) - Snowflake’s (SNOW.N) melting market capitalization reflects investors’ overly lofty expectations. Its share price fell by nearly a fifth on Thursday even though the $65 billion data warehouse firm said fourth-quarter revenue doubled. 

A solid business, with cash from operations easily covering capital expenditures, means slight missteps present a valuation conundrum, not an existential threat.

Fast growing firms are hard to value, but the market’s ardor read more is cooling. Snowflake thinks revenue will rise by two-thirds next year, to $1.9 billion. 

Now assume sales grow 50% annually for five years and the company will enjoy a net margin of 35%, like Microsoft (MSFT.O). On the same earnings multiple, the company would eventually be worth around $140 billion. 

That’s exuberant, but Snowflake was worth about this much in December. If growth is 20%, it will eventually be worth only a third as much on the same multiples.

Snowflake will continue to thrive. The same might not be true of other highfliers, such as electric-car makers like Lucid (LCID.O), which are burning cash. Without highly valued stock to issue, missteps could prove deadlier. (By Robert Cyran)

No comments:

Post a Comment