Snowflake Inc. shares have dropped almost 60% over the past 12 months amid concerns about software valuations as well as the outlook for consumption-based software companies in a choppier economic environment, but Wells Fargo’s Michael Turrin thinks that the data-warehousing name can still thrive. He initiated coverage of Snowflake’s
SNOW,
+1.55%
stock with an overweight rating and $170 price target Friday, titling his note to clients: “Winter is Here, but Some Cos Are Better Built for It.”
In Turrin’s view, Snowflake’s focus on “mission-critical technology” helps insulate it, and the company can also capitalize on “strong expansion dynamics.” Read: Should more services charge like a power bill than a Netflix subscription? That’s where software is headed. “Snowflake has greatly expanded its addressable use cases over the past few years, benefiting from its independently scalable but integrated architecture (separation of storage and compute),” Turrin wrote. “This has enabled favorable pricing relative to legacy peers and a modern approach to leveraging data.” He also likes the company’s financial profile, which he calls “well balanced” amid “exceptional top-line growth.” The company is on pace to grow fiscal 2023 revenue by upwards of 60%, he noted, and it’s benefited from growing adoption of the public cloud. The margin story interests him as well. With expectations for a free-cash-flow margin of roughly 23% in fiscal 2024, he says that Snowflake “is poised to reap the benefits of its rapid scaling through further profitability improvements.” Such trends could help the company reach its long-term goal for an approximately 25% margin of free-cash flow “well ahead” of the fiscal 2029 target. Snowflake’s stock is up more than 1% in Friday morning trading.