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.
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)
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)
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