With the equity markets surging and interest rates at historically low levels, the environment is ideal for IPOs. But for Snowflake, which has recently filed for an offering, it would likely do well in just about any market environment. This tech startup is growing like a weed and the market opportunity is enormous.
Founded in 2012, Snowflake pioneered the category for cloud-native data warehouses. The founders actually spent two years developing the software.
And yes, the timing proved to be spot-on. The market was ripe for disruption as traditional data warehouses have a myriad of disadvantages. Just some include: the inability to handle unstructured data and huge workloads, high costs, complex interfaces, problems with consistency and integrity of data, and issues with data sharing.
Note that the founders—Thierry Cruanes, Benoit Dageville, and Marcin Zukowski—were veterans of the traditional data warehouse market. They had worked at companies like Oracle, IBM and Google (by the way, the name “Snowflake” was chosen because the founders like to ski!) In other words, the founders had a strong understanding of the weaknesses of legacy systems—but also had the creativity to build a much better alternative.
“My company uses Snowflake and also competes with it in some cases,” said Sam Underwood, who is the VP of Business Strategy with Futurety. “Snowflake is growing rapidly, and justifiably so, because it’s filling a gaping hole in the market—namely, a huge need to unify data sources to form a single source of truth across an organization. There are many, many tools that already do this—Google BigQuery among others—however, Snowflake has combined the technical effectiveness with the UI simplicity to really excel among both technical users and high-level decision makers who may not want or need as much granular detail.”
So how fast is Snowflake growing? During the first six months of this year, revenues spiked from $104 million to $242 million on a year-over-year basis. While there continues to be significant net losses, the company has still been able to greatly improve gross margins.
Consider that a key technology decision for Snowflake was to separate compute from storage. “This offers great performance to customers without the high cost, so they get the best of both worlds,” said Venkat Venkataramani, who is the co-founder and CEO of Rockset. “This was phenomenally compelling at the time and years ahead of even the likes of Amazon with Redshift and Google.”
But of course, Snowflake is more than just about whiz-bang technology. The company has also assembled an experienced executive team, led by CEO Frank Slootman. Prior to joining, he was at the helm of ServiceNow, which he took from $100 million in revenues to $1.4 billion. The current market cap of the company is $93 billion.
True, Snowflake does have customer concentration, with Capital One accounting for roughly 11% of overall revenues. But then again, this does show the strategic importance of the technology.
“This IPO underscores a significant change in thinking about the increasing importance of the database market,” said Raj Verma, who is the Co-CEO of MemSQL. “Data has never been more important than it is right now. In the last 25 years, only one company in this sector other than Snowflake went public. And I’m sure we’ll see a couple more companies go out in the new few years as well. There was an iron grip on the database market for more than two decades, with IBM, Oracle and SAP HANA. Now we are seeing a changing of the guard, which gives customers the option of deciding what is best for their business. I can tell you that the technology of yesterday will not solve the data challenges of tomorrow, and this IPO brings newer technology solutions to the forefront.”