Will Amazon Web Services Partnership Restore Snowflake’s Triple-Digit Growth?
Bozeman, Montana-based cloud data platform operator Snowflake, went public just over a year ago, with its share price doubling on the first trading day to close at $ 240. Its shares had risen about 31% as of September 23 – below the 36% increase in the S&P 500.
Snowflake is growing rapidly, but its latest earnings report forecasts double-digit rather than triple-digit growth.
To propel his stocks, I think he needs to exceed expectations when he releases his third quarter results and raises his forecast.
Snowflake is partnering with Amazon Web Services (AWS) to help businesses take advantage of AWS machine learning (ML) and artificial intelligence (AI) services. One of these companies, Western Union, told me that this partnership has helped their business.
The partnership also provides for Snowflake to make substantial payments to AWS for infrastructure services and competition with the AWS data warehousing service.
Will the Snowflake / AWS partnership accelerate Snowflake’s growth? While Snowflake declined to share the revenue generated by the AWS partnership, AWS said “Amazon SageMaker [which enables ML services for Snowflake’s Data Cloud] is one of the fastest growing services in AWS history. We have over 100,000 clients using AI / ML services.
(I have no financial interest in the securities mentioned in this article).
Snowflake Expectations Surpass Growth
In the second quarter of 2021, while slowing down from its pace before going public, Snowflake continued to grow rapidly – beating higher expectations while losing more money than investors anticipated.
How much has its growth rate slowed down? In the year ending January 2020, Snowflake’s sales soared 173.7% to $ 264.7 million while its net loss nearly doubled to $ 348.54 million. As I wrote in August 2020, Snowflake reported 121% revenue growth in the last quarter of July 2020.
A year later, this growth rate was still high, but slower than the previous year. In the second quarter of 2021, its revenue soared 104.5% to $ 272.2 million, about 6% more than analysts expected, while its second-quarter loss climbed 251% to approximately $ 190 million, according to MarketWatch.
Snowflake expects growth to slow to persistently high double-digit rates. For the quarter ending October 2021, Snowflake forecast product revenue of $ 280 million to $ 285 million, the midpoint of which is 90% higher than the previous year’s revenue. Snowflake expects full-year 2022 product revenue of between $ 1.06 billion and $ 1.07 billion, with the midpoint roughly 93% higher than the year former.
“Snowflake enjoyed continued momentum in the second quarter with triple-digit product revenue growth, reflecting strength in customer consumption,” CEO Frank Slootman said in a statement.
Snowflake Partnership with AWS
Snowflake and AWS jointly serve many large customers including Instacart, Western Union
This year, the companies intend to double their co-selling opportunities by focusing on specific industries such as financial services, media and entertainment.
Ultimately, this partnership aims to help companies gain information that improves their effectiveness and efficiency.
One company that derives value from AWS is Zocdoc, a service that helps end users connect with healthcare providers. Amazon’s ML tool, SageMaker, has enabled Zocdoc to commission mission-critical applications much faster by automating model development.
How? ‘Or’ What? According to Amazon, Zocdoc data scientists used Amazon’s SageMaker to “build, train and deploy” models from scratch in “less than a day”, which allowed users to find the right doctor and make an appointment at the most convenient time and place. Before SageMaker, Zocdoc data scientists were involved in the development of the model, which “slowed down the product development teams”.
ML models work by analyzing all kinds of data, both structured and unstructured (think Tweets). It is by connecting all this business data to the ML that Snowflake intervenes.
One AWS service that works with Snowflake is SageMaker Data Wrangler – a program that cuts the time to gather data for ML from “weeks to minutes,” according to Amazon. As of June 2021, companies using Amazon SageMaker Data Wrangler can use Snowflake as a data source without writing code.
AWS is happy to collaborate with Snowflake. As Bratin Saha, vice president of Amazon AI and general manager of machine learning services, told me in an interview on September 16, “SageMaker grows rapidly because it creates valuable customer insights. For example, Georgia Pacific used [our product] optimize the speed of papermaking to improve the quality by 40%.
Snowflake sees great potential in its collaboration with AWS. As Senior Vice President of Product Christian Kleinerman told me on September 16, “We add value to customers for two main reasons. For the first time in 20 years, we have made innovations in database technology that technically adapt to customer wishes. Businesses can use our data cloud to get the right data into ML models to create business value. By working with AWS, we’ll democratize AI and ML, integrating them into everything from sports and entertainment to healthcare.
How Western Union benefits from the Snowflake / AWS partnership
Western Union helps individuals and businesses transfer money through more than 550,000 branches around the world for millions of customers across retail and digital channels.
Western Union has reaped significant benefits from the Snowflake / AWS partnership. As Pavan Yerra, Senior Director of the Organization’s Chief Data Officer of WU, told me on September 17: “We need one source of truth to create models and since we are not partnering with one supplier cloud services, we appreciate that Snowflake works with all of them. Our models help us tailor the right product offering to our different customer segments.
Yerra pointed out that Western Union’s partnership with Snowflake and AWS cuts costs by simplifying the movement of data and increases revenue by increasing its marketing success rate through more effective targeting of offers to customer groups with greater propensity to buy.
Gartner Peer Review of Snowflake and AWS SageMaker
A larger sample of customers suggests that Snowflake’s data warehouse and AWS SageMaker are popular with customers, some of whom see potential for improvement.
Snowflake Data Warehouse receives 4.7 / 5 stars from 141 customers on Gartner Peer Insights. A favorable review highlights how the product “simplifies capacity management and ensures rapid response times for all business workloads.” A less favorable review emphasizes the need for Snowflake to improve its “user interface and user experience”.
Meanwhile, SageMaker scores slightly lower – 4.3 / 5 stars out of 127 reviews, according to Gartner Peer Insights. A favorable reviewer noted that “the actual capabilities of SageMaker are quite astonishing”. A less enthusiastic customer said Sagemaker is useful for inference, but not for “training or data management”.
Snowflake competes and cooperates with AWS
When Snowflake went public, CNBC wrote about its complex relationship with AWS. Snowflake relies on AWS for its infrastructure and has committed to spending $ 1.2 billion on AWS technology between 2020 and 2025.
Snowflake covers this bet. As Western Union pointed out, Snowflake works on other cloud platforms, such as those from Microsoft and Google.
Snowflake also competes with AWS’s cloud data warehousing service. As CNBC noted, “AWS is making significant engineering and promotional investments in its own competitor, Redshift.”
In 2018, Amazon noticed that Snowflake was gaining business from Redshift. In response, AWS put together “a sales team to solve the problem” and introducing Aqua, a service that Andy Jassy, now CEO of Amazon, says increases query performance 10-fold compared to ” any other cloud data warehouse solution, ”CNBC reported. .
Snowflake says he’s comfortable with the complexities of partnering with AWS. As Kleinerman wrote in an email, “The needs of our customers determine everything we do at Snowflake. We compete with Redshift in the area of data warehousing and we work in partnership with most of the others. [AWS] teams, and SageMaker is an example of a great partnership. Both companies understand this dynamic and the benefits of the partnership far outweigh the competitive elements. We always do what is right for the customer at the end of the day.
In the absence of a clear answer from Snowflake, my guess is that its partnership with AWS may not improve revenue growth enough to restore Snowflake’s triple-digit revenue growth.
Perhaps his third quarter report will shed more light on Snowflake’s ability to keep its growth rate from slowing.