The past six months have been a windfall for Snowflake’s shareholders. The company’s stock price has jumped 91%, hitting $323.27 per share. This was partly thanks to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Is now still a good time to buy SNOW? Or is this a case of a company fueled by heightened investor enthusiasm? Find out in our full research report, it’s free.
Why Is Snowflake a Good Business?
Named after the unique architecture of its data warehouse which resembles a snowflake pattern, Snowflake (NYSE: SNOW) provides a cloud-based data platform that enables organizations to consolidate, analyze, and share data across multiple cloud providers.
1. Billings Surge, Boosting Cash On Hand
Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.
Snowflake’s billings punched in at $907 million in Q1, and over the last four quarters, its year-on-year growth averaged 31.4%. This performance was fantastic, indicating robust customer demand. The high level of cash collected from customers also enhances liquidity and provides a solid foundation for future investments and growth. 
2. Projected Revenue Growth Is Remarkable
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite, though some deceleration is natural as businesses become larger.
Over the next 12 months, sell-side analysts expect Snowflake’s revenue to rise by 28.5%, close to its 47.9% annualized growth for the past five years. This projection is eye-popping and suggests the market is baking in success for its products and services.
3. Customer Acquisition Costs Are Recovered in Record Time
The customer acquisition cost (CAC) payback period measures the months a company needs to recoup the money spent on acquiring a new customer. This metric helps assess how quickly a business can break even on its sales and marketing investments.
Snowflake is very efficient at acquiring new customers, and its CAC payback period checked in at 27.6 months this quarter. The company’s rapid recovery of its customer acquisition costs indicates it has a highly differentiated product offering and a strong brand reputation. These dynamics give Snowflake more resources to pursue new product initiatives while maintaining the flexibility to increase its sales and marketing investments. 
Final Judgment
These are just a few reasons why we think Snowflake is one of the best software companies out there, and after the recent surge, the stock trades at 17.8× forward price-to-sales (or $323.27 per share). Is now the time to initiate a position? See for yourself in our full research report, it’s free.
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