Chit Chat Stocks - Simon Erickson | Snowflake (SNOW)

Episode Date: December 13, 2020

On the 13th day of Christmas Simon Erickson gives to you, Snowflake the largest technology IPO. Snowflake is a cloud based data warehousing software. Businesses can store their data and access new insights that they would not have been able to without Snowflake. Visit our website: https://www.chitchatmoney.com/ Subscribe to 7 Investing with the code "CCM": https://7investing.com/subscribe/ Follow Chit Chat Money on Twitter: https://twitter.com/chitchatmoney Learn more about your ad choices. Visit megaphone.fm/adchoices Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to 25 Stocks at Christmas presented by Chit Chat Money. Today we have an interview with Simon Erickson and we talk Snowflake. He is the founder of 7investing. That's our partners. So your time for the sales pitch. Yeah, I mean you're going to get access to what Simon, one of the advisors over there and the founder of 7investing, how he looks at investments. And if you want to check them out, you can use our promo code CCM at checkout.

get $10 off your first month. That is $7 for your first month to try it out. And you get the seven stock picks and you get to look at their historical recommendations, see how they've done. Now they've been around for less than a year and they are long-term investors. So one year isn't like the track record they're looking for, but they are trying to make investments with a five to 10 year time horizon. And if you're that style of investor, which we are, it's a perfect service for you. And so if you walk away from this interview, wowed by Simon, remember it's coupon code CCM. And what were, did you mention what company we're talking about? Snowflake. Snowflake. It's a, it's a hot name. It people, you know, it's got that high sales ratio, but Simon goes

through why the business is in a really strong position. He gives us pitches. It's quite, um, I'm, I'm not getting the word for it. It's a thorough, it's a thorough overview. Yeah, and it makes the high price tag seem a little, maybe, cheaper than you might imagine. Yeah. There you go. Welcome to Chit Chat Money. On this show, hosts Ryan Henderson and Brett Schaefer interview industry experts and riff on the world of investment.

As a quick reminder, Chit Chat Money is a CCM Media Group podcast. Ryan and Brett are not financial advisors. Anything discussed on Chitchat Money by Ryan or Brett or any other podcast guest is not formal advice or a recommendation. Now, please enjoy this episode. Today, we are welcomed by Simon Erickson, our friend. He is the founder of 7investing, as you probably know him, which is our partners. And this is a good time to say, hey, feel free to use our coupon code CCM at checkout

for $10 off. But Simon, welcome to the show. Hey, Ryan and Brett, thanks very much for having me. We're all really big fans of your podcast and of your investing research. So, it's a real pleasure to be here with you. Today, we're talking Snowflake, which has been a newsy one and a lot of it's probably because of valuation, but I'm going to sort of let you explain how you got into Snowflake as an investment. Where did you find it? How did you come across it? Well, it basically jumped off the screen and smacked me in the face, Ryan. I mean,

it's the largest tech IPO of all time, $3.7 billion they raised back in September. Now, it's already got a valuation of over $100 billion. This is a company that's still less than 10 years old. So, to see something grow up that quickly is just fascinating to me. It's one that had to be on my radar after seeing all of that. Yeah, it was kind of hard. I mean, you know, through the media and on Twitter to not get, you know, exposure to this company. It's one of the ones that's been talked about a lot yeah and especially if you throw buffett's name or berkshire's right right along with it that probably doubles the valuation alone yeah yeah and valuation i mean a lot of people are calling it an overvalued company and when that tends to happen it's

something that really piques my interest right yeah that's that's that's how you guys uh like to do things uh what so a lot of people are confused on what snowflake does uh so do you think you could do, you know, an explainer. I know there's a lot of software industry jargon, maybe try to, you know, I think the listeners would be helpful with that. Yeah, let's kind of take a step back and try to avoid the buzzwords and the jargon for a little while and kind of look at why companies wanted to have databases in the first place. So like, if you go back a couple of decades, companies really wanted just a transaction register so that they could see when they were getting orders from their customers, how much were they

paying? What was the margin on those? You know, how many were they shipping, etc, etc. And so if you think of just an example, I mean, Gillette wants to know how many razors and how many blades it's selling, so it can kind of get its operating costs under control and figure out how much money it's going to make. But over the decades that followed, these databases kind of expanded from just transactions to being more and more marketing, operational databases, logistics, you know, all sorts of different dots that they wanted to connect. So back to the example of Gillette, maybe they wanted to say, hey, we've done a marketing campaign where we give everybody in America a free razor when they turn 18 years old. But then those people ended up buying 500%

more blades over the next decade. That's a new data point that might have been in a marketing system rather than that transaction register, but they wanted to correlate between the two of those. And then they might want to see, well, what are their shipping costs across different parts of the country and where were they getting the most people? And so you kind of had these separate data silos that started popping up and it wasn't just a transaction register anymore but it was a whole bunch of different important points that companies wanted to connect and so fast forward today you know here we are in the year 2020 where data is coming from infinitely more sources we've now got billions of data points coming from sometimes millions of different positions

we've got the internet of things we've got all the traditional legacy systems we've built we've got new ways of collecting data all over the place and companies have even more complex and sophisticated ways of using artificial intelligence to connect all of those dots together and so this all of this brings me to the great data warehouse in the sky which is snowflake which is essentially creating a data warehouse which will house all of these different types of data together in a really really simple way for companies to make sense of it and tie it to one another and then get insights from it. And so, you know, technically back to the buzzwords, Snowflake is a, is a cloud data platform that is aggregating data silos, and it's running three different tiers of this data

storage, data computing, and then application services on top of that. And so it's working with the three largest cloud companies out there, Google, Amazon, and Microsoft for using a bunch of different applications and computing, but it's kind of putting all the data together in one centralized place that you can start working with everything at the same time okay and i guess the storage thing i think people can understand intuitively do you think maybe you could have like an example of the other two things like the applications uh you know yep so computing is uh is just what's actually what are you actually doing with the data are you running multiplication in excel project for it are you using it to do uh complex machine learning or deep learning and

artificial intelligence you've got to do something with the data to get the output that you want And so more and more people were just, you know, oversizing their systems for their on-premise infrastructure and buying more and more computing power. But Google and Amazon realized, hey, if we offered this at a centralized place and just farmed it out based on computing instances that we would charge people per instance, they could do it a heck of a lot more efficiently. And people didn't want to do all of that themselves. So one of the biggest things that Amazon and Microsoft and Google are doing is offering the computing for the data that's all stored within that data warehouse that Snowflake has. And then the application services, those are, you know, not only making that efficient, but what are the applications that are pre-built? What are the algorithms? What are the things that people are commonly and routinely wanting to do that could be a really quick way for people to make sense of all the data and all the computing that they have? Okay, so then Snowflake, say if they're partnering with the business, this application stuff can help them save time, you know, increase efficiency? Yes, absolutely. Making sense of all the data that you have.

They're getting more than 500 million queries per day from all their customers right now across all the biggest cloud vendors. And how do customers pay for this? Is it like a subscription thing or are they paying based on how much they use? How does that work? It's one of my favorite parts of this investment is that it's all usage based. So we've gotten so used to cloud computing and anything that's kind of delivered over the cloud as being a set fee per month, right? If we're using Zoom, we're paying a certain amount per Zoom, whether we're using it one time a month or we're using it every single day, 10 hours a day. Snowflake is basically assigning credits.

People can buy credits and then they use those credits for storage computing or for the applications. And so when you see the revenue and the growth that Snowflake is getting right now, that's not something that's just going away when COVID goes away, or that's not something that people are paying more than what they're actually deriving value from. This is a true usage-based model, just like Twilio was a usage-based model, just like a lot of Splunk was a usage-based model. And so it's giving us kind of a glimpse into how people are actually consuming the value that they derive from this platform. Right. Yeah. I guess that it aligns the, uh, the values each one is getting. So the more you use it, it's not like someone that's using, I don't know, snowflake every day or 10 times as much, they actually have to, you know, pay 10 times as much. Yeah. Especially when you look at kind of the traditional data providers or the database providers in Oracle was charging licenses that people were paying a ton of money. And then Oracle had a team that was going out and suing people if

they weren't abiding by the terms of the license. Right. So, I mean, like that was something that that people are just saying, why, why are we paying so much money upfront for a lot of this stuff? We want it to truly be based on what we want to do and the usage that we want to be paying for. If you're a small team, you want to set up Snowflake and just pay a little bit per month. Great. And as you use it more and more, you get bigger and bigger projects. You're paying them more money in a way that's organic to your own growth rates. Right. Okay. So this, the value Snowflake provides could be for any small business up to like a fortune 500 company. That's correct.

Okay. And what about management? Who's running the company? I know Brad Gerstner, his fund has a big stake in it. I don't think he's a part of the management team, but I know he's talked about management before. What do you think of management broadly? So Frank Slootman is the chairman and CEO.

He came from ServiceNow, ran that business from 2011 to 2017. If you look at a stock chart of ServiceNow, you can quickly see that he did things pretty well when he was there. The company's CTO and president, they're two gentlemen that are both from France. They both work at Oracle. They're brilliant. They are database builders.

Between the two of them, they have over 120 patents to their name. They're working on things like query optimization and parallel execution. So this is efficiency in working with multiple cloud providers to do things in a way that makes sense. Stuff like that's not easy to replicate if you're a competitor. that might seem like somebody could just go in and do what snowflake did i don't think it's very easy at all to do with these guys that built okay and go ahead i think i remember uh hearing someone mentioned that the ceo has like a military background too so he's like very structured

at work like he like commands a lot from his employees but he does well i guess um i don't know if you've heard anything about that but i remember someone talking about it i will take your word for it, Ryan. He's Dutch. I don't know about the military background or what his culture is like, but I'm sure he's executing very efficiently, which is appropriate for a company like Snowflake. Yeah. Hopefully I'm not getting that wrong. Maybe if you're listening, fact check that. But we'll get to sort of the thesis unless Brett has any more questions. No more clarifying ones. So this is sort of the main crux of the discussion, but why do you like it as an investment? Well, I think the first thing that I really like is that they are cloud agnostic.

This is something that so many companies are seeing efficiencies emerge because computing and storage and the applications of Google isn't always exactly the same as Amazon, isn't always exactly the same as Microsoft Azure. Service license agreements in different parts of the country cover what they can and can't do. The pricing is not always exactly the same. Companies are really wanting to do multi-cloud. it's just a matter of like how do you get the best bang for your buck for it and so snowflake just

like every other company out there doesn't want anybody to be tied to one vendor they want to say hey cloud computing for all and for the win out there go pick out your providers we'll find a way to make it happen for you the other thing i really like is that it's easy to use i mean developers don't want to go out there they don't want to be tied to a certain vendor but also if you guys have noticed data scientist time is expensive you know if you're going out and hiring data scientists in California, you're probably paying them $300,000 plus benefits. So you want them to be working as efficiently as possible. And so when we say things like ease of use, or just put all of your data in one place, and then you can run applications off of it, that saves a lot of the kind of prep work

and the lower value time that goes into aggregating data, compiling data, getting data from separate silos on the same page so you can analyze it. I mean, stuff like that, we can't appreciate how many billions of dollars goes into that every single year around the world. And so ease of use and convenience, that translates into people's time, which is a really big selling point. I think that Snowflake's doing a fantastic job with that. And then just the usage-based metrics. I mean, we can talk about those in a little bit more, but I think that the metrics for this company are fantastic right now. I'm sure we'll talk about valuation in a minute, but if you just look at, they've got over a hundred percent revenue growth year over year. That's usage based. So they're

clearly using the platform. That's not just something that's going to go away in the year, the next year. And then the thing that really stood out to me is 162% net revenue retention rate. That means if you're all, was that a, was that 162%? Sorry. 162. Yes. So, so that metric is if somebody is a current customer and they paid you a hundred thousand dollars last year, they paid you $162,000 this year. So not only is Snowflake going out there and adding Fortune 500 customers at an impressive clip, they're spending a lot more money as they're using the platform more and more. And it's usage-based, so it's legitimate. Okay. And how many, maybe this isn't on the top of your head, but how many customers do they have? And then maybe could you go through

some of the part of the income statement, like what are their margins like? Are they producing cash flow yet, some of that, unless, I don't know if you have them handy, but. Yeah, we do. They have 3,554 customers, which grew 84% year over year. They've got 65 customers spending more than a million dollars in product revenue per year. So that's that usage-based product. That's 110% up year over year. And then the remaining performance obligations, Brett, that is the committed credits that they've sold kind of deferred revenue, but hasn't been recognized in this current quarter, that's up 240% year over year to $928 million. So company that's growing really, really quickly. I'm sorry. There was a second part of your

question. Profitability. Yeah. Just kind of like the margins and maybe some of those numbers. Yeah. Still losing a lot of money because they're building so many things up so quickly. It is running at a loss right now in gap terms. I haven't double checked what the numbers are for cash flows. But the idea is that R&D and upfront costs will be outpaced by the combination of those current customers spending more because of the net revenue retention rate and then also signing on new customers. So they added 12 more of the Fortune 500 customers this last quarter. So now they've got 165 of the 500 largest businesses out there on board. Yeah. And with these type of businesses, a lot of the times with those backlogs, that RPO number that can make the gap

numbers seem like they're losing a lot of money when in reality they actually have contracted a lot of money and they're kind of they can see that that revenue is going to be coming in so they can spend a little more it's kind of like bookings for a video game company yeah that's i mean that's how i describe it does that yeah um another question i've heard sort of people mention network effect with this company um and i wasn't sure exactly how they have a network effect Do you want to touch on that at all? I think it's more of a data advantage is what I would probably call it than a network effect. Just that it's difficult to displace platforms like this that you can build upon.

You can get more applications on your data. You're putting more data out there. You've got something in place that's working very efficiently for you. Why do you replace something like that over time? You know, especially when you can hire Snowflake, which has got the guys that are the global experts in parallel execution of cloud service providers, 120 patents between their two, their CTO and their president. If somebody came out and said, hey, we'll do this for half the rate, but you got to move all your stuff over to our platform now and abandon everything you had.

It's very challenging to do. I think there's some huge switching costs and a data advantage they're building. Right. And I guess that was what happened with Oracle, right? In the 80s, 90s and early 2000s. And now their moat or competitive advantage is getting eroded by a company like Snowflake. Yeah. And to be honest, I mean, a lot of people bring up Oracle as like the company that Snowflake is trying to displace. I honestly, I don't think that is so true, at least in my opinion. I think it's more of that they're trying to displace what Oracle has built upon its bread and butter. What I mean by that is Oracle's got the relational databases that kind of held those transaction registers that we were talking about before. It's got the

rows in the column saying, hey, this many people bought this much stuff. This is how much they paid. That's a different type of database. That's something you want to have minimal data storage on. You want to have it immediately functional. You don't want to have any downtime. You don't want to run a whole lot of computations on it because you don't want to be big and clunky. You just want it to be really, really efficient and never go down. But on top of that, you know, on top of that relational transactional database, you want to build out a data warehouse where you can start using your AI and get the bells and whistles and the applications and things, right? So you don't want to be fidgeting with too much of what Oracle has built its business and optimized for decades

upon. But we do recognize that there is a lot of data moving to the cloud right now. There are more efficient ways to do a lot of these things that require some heavy duty computing out there. I think that's the backyard that Snowflake wants to play in. And I think at the end of the day, this kind of becomes a, how large are those markets and how competitive is the space going to get? And then what portion of that goes to Snowflake as they develop their own capabilities? Right. So is this kind of a, this is kind of a winner take all market where Snowflake might get all of that. And then also maybe on the Oracle side to simplify it a bit, is it almost like they're taking Oracle's products and just bringing them to the next level or like something like that? Yeah. I mean, Oracle is building their own capabilities on top of their core databases. And so you've seen Oracle spending a lot of money on the cloud right now. Yeah.

They're kind of disrupting a lot of their on-premise business because they see data migrations going from these, you know, completely hosted platforms. You did it all yourself. You built everything yourself. Now you just let Google take care of it. Oracle has a solution that they can do cloud computing as well. But I guess the question becomes, you know, who wins as this market grows? Transactional databases, I've seen estimates that this is a $29 billion market right now. And the snowflakes market, when you look at more data warehouses and the direct spend on that's more around $14 billion. But that could easily be an $80 billion business in a couple of years, just because cloud computing is growing so quickly.

If you look at the growth rates of Amazon, of Microsoft, of Google, I mean, we're growing 30, 40% in the cloud every single quarter, year over year right now. The largest cloud providers, which are those big three, are responsible for about 60% of the global cloud computing spend, which is amazing how big and how quickly this has happened. And now it's companies finally getting smarter and moving a lot of their projects over there as well. Yeah, and it looks like that whatever estimates you see, it's got to be at least high teens over the next five years growth for this market, or even higher in the 20s. So that's a nice tailwind that a company like Snowflake could ride. Yeah, agreed. Any more questions?

I got none. Okay, we're going to hit a quick break here, and then on the second half, we're going to try to poke some holes in Simon's thesis. Cox Panoramic Wi-Fi includes advanced security to help protect all your connected devices. You'll get real-time alerts. Oh, like this one. So you don't have to worry about malware. Or when your kid downloads a song from a shady link.

And now all your computer can play is... Red color, red color, where are you? All blocked, thanks to Advanced Security, included with Cox Panoramic Wi-Fi. Advanced Security must be enabled in the Panoramic Wi-Fi app. Restrictions apply. welcome back in next up we have devil's advocate most of you guys know how this goes we've got a few counterpoints and we're gonna let simon try to refute them i'll go first and i think everyone knows what i might mention here uh which is the valuation uh because uh i'll say some numbers and

they're a little eye-popping i'm not sure what the price was today uh but these are based off like I don't know. So, uh, the trailing 12 month price to sales is 224. Uh, their market cap is 224 times. They're trailing 12 months sales. Their next 12 month price sales is 117 times. Uh, yes, this seems like a really good business, but I, I just get this feeling that it's priced to perfection. Am I wrong? It is priced to perfection. A hundred times sales is not usual. That is an extremely high valuation and a premium to almost every other cloud-based business out there. The question in my mind, Ryan, is what is in the denominator? Trailing 12 months sales for a company like Snowflake might still just be getting started.

As they're getting big customers signing on, no one is immediately going to migrate all of their data over. They're going to tiptoe in the shallow into the pool first and start doing some projects to make sure they understand how this thing works and make sure that it's returning the data that's accurate and important to them. Now, does that increase by a factor of 10 when you've got really big Fortune 500, Fortune 10 companies that are signed on

and start using this because they really see the value that it drives? Keep in mind that Snowflake is a usage-based model. They are making revenue based on how people are going to be doing computing and storage. And so if this increases by 100%, it's still a very expensive stock. Um, if we are really hitting an inflection point and we see some serious usage of this platform, we could be sitting on a very undervalued stock

right now. And so it kind of depends on, on, you know, how, how long can these large companies, um, how, how quickly is snowflake signing them up and then how long does it take until they plateau? And I think that with, we'll talk about the valuation some more, but just in terms of the stock price and how quickly it's risen, I think you have a lot of institutional investors that are betting that it's the latter, that we don't fully understand this business's potential yet. They like the management team that's in place. They like its position in the market, and they're willing to bet at a premium valuation that this company is going to be doing a lot more business in five years than it is today. Is a key metric for that the dollar-based

net retention rate? Well, I don't know if it was that specific one, but the retention number of 162%. Do you think that's an indicator that the current customers can still contribute, you know, high double digit growth over the next few years? Yes, absolutely. That one, uh, 93% of revenue is coming from consumption. So that is a really good sign that it's being used that, uh, remaining performance obligations, Brett, I mean, how, what does wall street love? It loves predictability. And so if you've got that much lined up already, then there's not a whole lot of, of questions of whether or not there's future business that's going to come in. It's already got it. It's got it booked already. And so I think that the combination of all those has a lot of tech

investors that institutional funds are very excited. Okay. And then for, I guess this is kind of a tougher one, but when you're looking at it at this premium valuation, do you kind of go about it where you're going to buy some now? I know that's not, that's kind of a tough question to answer or management, but yeah. How do you think about managing the portfolio with something that's priced at a premium valuation. Would you like me to answer that before or after we talk about the risks? Yeah, we can, I guess we can do that after the risks. Yeah. Yeah. That could be good. All right. I'll hit my counterpoints. So, uh, I, I was looking online now. I'm not sure why this would be the case, but when I was researching some of the bear cases, this is

something that came up. Um, people were claiming that snowflakes, since they rely on the three big cloud providers for its services that they may not have any pricing power um over time or there's going to be a ceiling on the pricing power because they have to rely on aws azure and google cloud does that make sense or do you just kind of the nature of the business i think you know like we said again 60 market share with just three cloud providers um you can say okay i'm not going to work with Google and Amazon, but then you're leaving the entire opportunity on the table right there. I think that's kind of the nature of the beast. When you go into cloud computing, there's a whole lot of cloud providers that are out there. You got Salesforce, you got Oracle,

you've got IBM, you've got a whole bunch of people that are doing cloud, but it really kind of boils down to the lion's share going to the big three. Yeah. And I guess that now I'm thinking about it, the historically like a company like say Autodesk or something like that, they've had, you know, they bid all the right price raise prices and they use cloud services there's a lot of companies that have shown pricing power so maybe uh maybe that does make sense all right ryan yeah yeah i guess the the flip side which you just mentioned uh what the risks are what is that for you and then is there any one big sign that would make you sell a snowflake or change the way you think about uh there is one thing that i think that i'm not a big fan of at the company and that's the

compensation plan that they have in place. They are paying their executives very generously in stock options, which invest over time, but it still adds up pretty significantly. They gave their CEO $60 million of option awards last year, before it was even a publicly traded company, $20 million to the CFO. And between the two of those, if you dig really into the nitty gritty out there, I found that they've still got 20 million of unvested options that are available to them from the current executive compensation plan. So 20 million options at $400 a share or thereabouts right now, gentlemen, if you're doing the same math that I am, that's $8 billion that these two, these two guys, you know, have over the next decade that will eventually

invest. That's an incredible compensation for an already well-paid management team. Adding that, that they're being paid in stock awards, which are not performance-based, it doesn't matter how well Snowflake does. It's just the stock price that will generally determine what payday they get from these. Coupling that with the fact that really two thirds of shares are still owned by venture capitalists. Now this is a publicly traded company, which we are going to see in the early spring, the lockup period expire. I think that'll happen in March because it just went public in September. So you've now got two thirds of shares that VCs have an option to cash out on.

VCs love a payday when they've got a company that's grown this quickly, this fast. And so I think a big question on my mind, the biggest risk actually on my mind is just what's gonna happen. Are we gonna flood the market with a bunch of insiders cashing out and what's that gonna mean for the share price?

Right, so that could be some short-term volatility. At least there's a chance. I mean, that happens with most IPOs, right? That's something an investor that's buying into shares in an IPO has to be aware of. Yes, I agree. I forgot, did you mention, is the CEO the founder as well, or are any of the executives the founder? The company was founded back in 2012, I believe.

The two founders were both from France. I don't believe that Frank had a founding stake in the company. He was a service now at the time that this company was on board or was founded. So do you think that maybe this generous compensation is to sort of get some skin in the game for the CEO, and then maybe they might slow that down once they're like, all right, if now he goes down with the ship too. Yeah. I mean, you got a couple of tech guys that really wanted a business guy running, steering that ship. Right. So they said, okay, you know, you're going to be paid very generously to come in here and grow the valuation of this company. I mean, look at service now,

service now from, what did we say? 2017, 2011 to 2017. I mean, it's a hundred billion dollar company now. And you've got Snowflake, which is already a hundred billion dollar company. He just took over a couple of, a handful of years ago. What is he going to grow this to? And what were they willing to give up for him to grow this business even larger? And to some extent, you know, there's a lot of smart companies out there with really smart founders, really smart tech people. There's only a handful of really, really distinguished business people that have executed incredibly well with those companies. And that's why you only see one Google out there, one Amazon out there, one Microsoft out there. I mean, the cream rises to the top. The best in breed

companies in this, like you said, I think Ryan, or maybe it was Brett that said the winner take most markets. You have to execute really, really well. And that's what they're betting on when they brought in Frank to steer the ship basically. Okay. So investors kind of got to think like, all right, maybe our shares are going to get diluted a little bit, but we got a CEO now that one has a lot of experience and two um you know has the skin in the game i think that's a fair statement okay and then are you i was gonna mention you brought up the concern about vcs owning a lot and the other part is uh i i'm willing to bet that those vcs i know brad gersner who is one of those VCs, like 75% of his company's holdings is in Snowflake. So they have their own

concentration risk as well. So they might be, and I imagine some of the other VCs are sort of in a similar boat because Snowflake has done so well that they might have some concentration risk in their fund that might have to force them to sell. But I guess it's a little speculative. Yeah. I mean, great points. I mean, let's look at the blocking and tackling and the transactional piece of this of who's got your shares and what is on their agenda. Um, when you've got venture capitalists with large stakes of their own funds, um, you've got some big names on board. Sequoia is on board. You've got a lot of credibility of the people that have invested, but you've got to kind of wonder what's their agenda as well. Right. Okay. Uh, now we're going to hit our last

question. Let's say you're, um, the CEO of Snowflake for a day. You're in a Frank, is it Sloot, Slootman, Slootman, his shoes. Uh, what is one change you would like to see Snowflake make? Well, I guess, I don't know if this is Frank speaking, but me speaking as a potential investor in Snowflake is I would like to see the, the compensation tied a bit more to performance metrics. Uh, they do have a, a cash payout every year. Um, that's based on, on metrics that are, a little bit shorter term, a little bit easier to monitor. I think that it's a little bit excessive to spend, you know, $60 million in stock options that are going to the CEO who's cashing them out every year when you could be at least tying those to saying, okay, we want to make

sure that usage remains this high. We want to make sure that margins remain this high. We want to do something that's definitely going to reassure shareholders that you're not just going to take a massive payday and walk right out the door with it. So, you know, Frank might have a different opinion on this one than I do, being that he's the one that's getting paid a lot more to say this than I am. But as an investor with a really, really popular tech company like this, that is so heavily based upon stock-based compensation, I think my biggest risk and the one thing I would change would be, let's tie it a little bit closer to performance rather than just stock price. And I mean, just one more thing too, Brett, I mean, like they left a lot of money on the table

too, right? Like Snowflake went public in September at $120 a share. Where are we today? Three, three 80, $400 a share. I mean, it's more than tripled that has gone to the benefit of their earliest investors, the venture capitalists, the people that got in the first day of trading Uh, that they could have raised a lot more money if they knew that all the demand for their shares was going to be out there. So there's been kind of this institutional buying frenzy going on. Um, I, I, I think I would have loved to see them maybe hold off and do a secondary later on rather than just, okay, we're going to throw out our IPO at 120 a share.

And then you see so much additional demand from the market later on. Yeah, that is tough because when, when, uh, investors look and they say, oh, this IPO did really well it's up 200 whether the company's looking at it like well we could have not you know we could have raised a lot more money at a higher valuation would you like to see them do another offering and sort of oh yeah take some cash from their current valuation or maybe use their uh you know their their share price as a you know a currency that's very valuable i would like that after the lockup expires i think we're going to have some volatility in march as people are cashing out and that might put some downward pressure on this stock. If it maintains and

people are really ready to just pick those right back up and there's plenty of demand or insiders don't sell. I mean, there's another option that all the VCs want to stick around for the ride because they think this is going to be worth a lot more in the future. If one of those maintains and you don't get some selling pressure, then yeah, I think you should raise raise money when it's there. Just because winner take most, you know, virtuous cycle, the biggest companies can raise capital at premium valuations, which makes it harder for their competitors to reach them and raise money at the same attractive rates. I mean, this is something that kind of becomes self-fulfilling after a while.

Yeah. But that's something that has happened with Salesforce almost. That's kind of a big reason why they've been successful. Yeah, absolutely. And then use your money for something that's shareholder friendly, like acquisitions for Salesforce or give Elon Musk, you know, at Tesla, who's, I would argue his stock is priced at a premium him right now too, but it's going to be harder and harder to catch him because of the capital requirements of that business. Yeah. They were able to raise that, that premium valuation that did. I think that that definitely helped their balance sheet a lot. You brought up an interesting point too, which is we talked about, okay, there's going to, the lockup's going to end

and there's the possibility that insiders can sell, but how much of a vote of confidence would it be for shareholders? If you've got funds where 70% or more of their holdings are in snowflake and they don't sell, I mean, I feel like that's got to be a really good sign for the retail investor. Yeah. Buffett gave his endorsement to Snowflake, right? Right. Even Warren said this is a business that he wants to get a part of. I mean, yeah, everything you just said, Ryan, the winners are going to climb to the top. I think that it would be a huge vote of confidence to see those early insiders stick around. They're building something that's really big here. I think that this is a market that has legs to it. It's very different from

most other cloud computing companies, which are kind of more focused on building a particular application, you know, a software as a service, something like that. This is a huge platform that ties into all the largest cloud service providers. It's got computing from all the giants. It's got applications from all the companies that are building those individually. And they're just saying, Hey, move, move to the cloud, become more efficient and learn more about your business. And we're here to be the platform that's going to do it for you. Right. Yeah. And I think I, sorry. Yeah. One more thing before we wrap up. I don't want to get people too excited because I do know this is a premium valuation, but I saw an anecdote, I think

from one of the executives saying that companies that were spending upwards of like $50,000 with Snowflake last year are saying they're going to be spending a million dollars over the next 12 months or something like that. So I think, yeah, that retention rate is, it is real. cloud computing is a pretty big deal these days i hear yeah i yeah i hear that a little bit all right well i think that's all the questions we have simon thank you for coming on hey ryan i had a lot of fun thanks for having me yeah oh we should say i mean everyone knows where uh what seven investing is but maybe you know say how people can find you and get in touch with uh the service sure yeah so we're seven investing.com we are every month giving our seven best ideas in

the stock market. Our mission is to empower you to invest in your future. So, even though our product is making stock recommendations, our higher level mission is to get people more involved in their own investment choices. And we recognize that there's a lot of different industries out there. There's a lot of investing styles out there, a lot of different risk tolerances out there. And so, we try to have a diverse group of options every single month, whether it's biotech, whether it's cloud computing, whether about its digital payments. We have advisors that kind of expand the gamut of different styles of investing. And we try to present those every single month, 7investing.com.

Man, we do a sales pitch at the beginning of each episode. We do it from now on. Yeah. Thank you. Thank you, Ryan. All right. We want to remind our listeners that we are not financial advisors. Anything we say or discuss here on Chit Chat Money is not formal advice or recommendation. Thank you guys for listening. We'll see you next time. We'll see you next time.