But the 2020 records are not yet broken.
This snowflake is burning
Wednesday September 16, cloud data giant Snowflake (NYSE: SNOW) debuts.
Snowflake was widely regarded as the most anticipated initial public offering (IPO) of the year, if not the past two years. Early indications were that the company was pricing its IPO in the range of $ 75 to $ 80 a share, but Snowflake officially set its list price at $ 120. Even this 50% increase has reduced insane investor demand for this stock. When the closing bell rang on the company’s first trading day, shares of Snowflake had risen nearly $ 134, or 112%, from its IPO price to close at just under 254. $. For you mathematician, that equates to a market capitalization of over $ 70 billion. This makes Snowflake the biggest software IPO of all time.
Why such an insane demand? On the one hand, Snowflake had salesforce.com and directed by Warren Buffett Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) invest $ 250 million each through a private placement. Berkshire Hathaway will also acquire more than 4 million shares through a secondary offering. To be clear, I’m almost convinced that investing maven Buffett is not behind this investment and has no idea what Snowflake is doing. On the contrary, the investment of Berkshire Hathaway has everything to do with the investor lieutenants of Buffett, Todd Combs and Ted Weschler. Of course, that still hasn’t stopped people from forcibly connecting the dots that “Buffett’s company bought out from Snowflake.”
Snowflake is also what we would call a hyper-growing business. Sequential quarterly growth has averaged 24.3% over the past eight quarters, and the company has more than doubled the number of customers spending at least $ 1 million annually from the previous year’s quarter ( 56 against 22). Plus, its 158% net retention rate confirms the idea that successful customers spend more (ie, store and share more data).
But at over 130 times annual recurring revenue (ARR), Snowflake is extremely expensive. In fact, the company’s valuation briefly exceeded its total addressable market ($ 81 billion) on an intra-day basis. If given a choice, I would say forget about Snowflake and buy those hyper-growth stocks instead.
If I wanted supercharged growth I would much rather buy the Telemedicine Pivot Santé Teladoc (NYSE: TDOC). After all, Teladoc increased its annual revenue from $ 20 million in 2013 to what appears to be around $ 1 billion for 2020. That’s a compound annual growth rate (CAGR) of almost 75%. For what it’s worth, Wall Street predicts the company’s annual sales will approach $ 2.6 billion by 2024.
You might be thinking, “Hey, isn’t this growth entirely the result of the coronavirus pandemic? To some extent, the company’s push towards $ 1 billion in annual sales and the 203% increase in total visits from the previous year’s quarter to the second quarter are direct responses to the disease. coronavirus 2019 (COVID-19). Doctors want to keep people infected with COVID-19 and at-risk patients with chronic illnesses out of their offices whenever possible.
But a 75% CAGR also suggests Teladoc was gaining ground long before the pandemic hit. Telemedicine is a victory for the entire healthcare chain. It is convenient for the patient, increases flexibility of schedules for physicians and reduces costs for insurance companies (compared to office visits). These benefits mean that we will only see telemedicine gain in importance and use over time.
Teladoc also acquires applied health signals company Livongo health (NASDAQ: LVGO) in a cash and stock transaction. Livongo’s platform collects a lot of data on chronic disease patients and uses artificial intelligence to send advice and nudges to these people. The company’s goal is to induce lasting behavior changes in these patients so that they live healthier lives.
Livongo’s diabetic membership has at least doubled year on year, with the company reporting three consecutive quarterly profits. A combined Teladoc and Livongo will be virtually unstoppable in the field of precision medicine.
If investors eagerly scoop Snowflake cloud data warehousing stock north of 130 times ARR, then cloud native cybersecurity specialist Participations CrowdStrike (NASDAQ: CRWD) is a valuable stock strongly discounted at 36 times the ARR. Yeah, I’m a little sarcastic. But on a relative valuation basis, and looking at CrowdStrike’s sales and growth potential, I’d much rather buy it than Snowflake at this point.
If hyper growth is your thing, you’ll get it with CrowdStrike. According to the company’s second quarter 2021 results presentation, full-year customer subscribers jumped 176%, 103% and 116%, respectively, in each of the past three fiscal years, and catapulted 91% to the second quarter 2021 compared to the previous one-quarter. Keep in mind that this 91% growth in subscriber numbers occurred during the worst quarter of the U.S. economy in decades.
How did CrowdStrike not fail with the economy? The simple answer is that cybersecurity has become a basic service. Hackers don’t take long just because a small business is in trouble. Additionally, with the COVID-19 pandemic changing the traditional office environment, businesses have turned to shared clouds and offsite workspaces. CrowdStrike’s AI-based solutions are therefore in high demand.
What makes CrowdStrike a long-term winner is the company’s success in getting its existing customers to spend more. The company’s Falcon platform is designed to scale and become smarter to detect threats as businesses grow. CrowdStrike notes that in its recently ended quarter, 57% of its customers had at least four cloud module subscriptions. This figure was only 9% in the first quarter of fiscal 2018.
CrowdStrike could reasonably triple its annual sales over the next two years, making it a real bargain next to Snowflake.
Another fast growing stock that I would buy on Snowflake is the payment facilitator Square (NYSE: SQ), which nearly quintupled its March 2020 lows. Square is by no means cheap, but it has all the tools it needs to be a game-changer in the fintech space.
Square’s proven business is the enterprise seller ecosystem, which provides point-of-sale solutions to businesses. Since its launch, the company has focused on small businesses. The gross payment volume (GPV) on its network has grown from $ 6.5 billion in 2012 to $ 106.2 billion in 2019. That’s a healthy CAGR of 49% per year.
But what’s interesting is that Square is seeing a growing number of medium and large businesses using its sales platform. A medium / large business is a business that generates $ 125,000 or more in GPV. According to Square’s most recent quarterly results, these large companies accounted for 52% of the total GPV. This growing proportion indicates higher merchant fee collections over time.
Square also has Cash App, which is the significantly faster growing segment of its operations. In 30 months, the number of monthly Cash App users has grown from 7 million to 30 million, with 7 million of its current 30 million users also using Cash Card (a debit card linked to a user’s Cash App account) . Cash App is the perfect way to tackle the war on cash and offers the business a number of ways to generate income (e.g. merchant fees, bitcoin trading, and fees. transfer rates).
At this point, anyone can guess how fast Square can grow. Its CAGR over the next four years is estimated at nearly 53%, and the company has a proven track record of beating the consensus estimate off Wall Street. This is a business I would buy in the blink of an eye before I hit Snowflake.