Snowflake CEO discusses spending, guidance, A.I., and outlook

Table of Contents

1. Introduction
2. Ramping of New Customers
3. The Bookings and Consumption Dynamics
4. The Challenges of Alignment
5. Analysis of Consumption and Bookings Trends
6. Headwinds in Customer Behavior
7. The Impact on Snowflake's Business
8. Industries Served by Snowflake
9. Concerns about the Macro Impact
10. Stability and Predictability of Snowflake's Business
11. Snowflake as a Platform for Developers
12. The Potential of Generative AI on the Platform
13. Expectations for Customer Behavior as the Economy Stabilizes
14. Improving Visibility for Investors

📚 Introduction

In this article, we will explore the current state of Snowflake's business as it relates to the ramping of new customers and the dynamics of bookings and consumption. We will analyze the challenges faced in aligning these two dynamics and examine the impact on Snowflake's overall business. Additionally, we will discuss the industries served by Snowflake and any concerns about the macro impact on these industries. Finally, we will delve into Snowflake's strategy of becoming a platform for developers and the potential of generative AI. We will conclude by discussing expectations for customer behavior and improving visibility for investors.

🚀 Ramping of New Customers

Snowflake has been experiencing the ramping of new customers, although at a slower pace. This is not necessarily a bad sign for the business overall. The ramping of new customers can be characterized as a tale of two dynamics: bookings and consumption. In some quarters, these dynamics do not Align and do not converge. It is difficult to determine the direction in which they are headed. On the consumption front, Snowflake has exceeded the high end of its guidance, indicating durability and resilience. However, there have been changes in customer behavior on the booking side. Customers have adopted a "wait and see" approach and prefer shorter duration contractual relationships, which may affect the economics of the business in the process.

💡 The Bookings and Consumption Dynamics

The bookings and consumption dynamics of Snowflake Present an interesting challenge. While consumption has been holding up well and surpassing expectations, there has been a shift in customer behavior when it comes to bookings. Customers, especially international SMBs, are exhibiting a more cautious approach. This behavior can be likened to deciding whether to fill up the gas tank fully or to visit the gas station multiple times and fill up smaller amounts each time. Snowflake's customers are buying enough to sustain their operations for a quarter or two, and then reevaluating their needs as their contracts approach the end. This cautious approach reflects the uncertainty and reservations prevailing in the current economic climate.

🔄 Challenges of Alignment

The misalignment between bookings and consumption presents challenges for Snowflake. While consumption remains strong, the slowdown in bookings raises concerns about the stability and growth of the business. However, it is important to note that this misalignment is largely influenced by the composition of the newer customer cohorts. Snowflake is now attracting larger mainstream enterprises, unlike the early adopters who were mostly digital natives. Additionally, the economic conditions have shifted, leading to a more cautious approach among businesses. This behavior has a temporary impact on Snowflake's bookings but does not necessarily indicate a negative trend. In fact, Snowflake believes that the terminal value of these larger enterprises will be better than that of the early cohorts, thus stabilizing and making the business more predictable in the long run.

🔍 Analysis of Consumption and Bookings Trends

The consumption and bookings trends within Snowflake's customer base indicate a complex picture. While consumption is resilient, bookings have slowed down due to cautious customer behavior. This divergence can be attributed to the economic uncertainties and reservations faced by businesses. Snowflake observes that customers are taking a short-term approach, buying only what is necessary to enable them to operate for a limited period. They are focused on obtaining favorable economics and are hesitant to commit to long-term contractual relationships. This behavior aligns with the prevalent sentiment of uncertainty in the market.

Pros:

• The resilience of consumption indicates the durability of Snowflake's solution.
• The cautious approach of customers allows for better control over costs and commitments.

Cons:

• Slowed bookings may raise concerns about the growth rate of Snowflake's customer base.
• The short-term buying behavior may affect the predictability of future bookings.

🏢 Industries Served by Snowflake

Snowflake serves various industries, with a significant customer base in financial services, media, and telecom. These industry segments are crucial for Snowflake's business and raise questions about the potential macro impact on their consumption rate. However, Snowflake reassures investors that the consumption within these industries is holding up well. Despite adjusting their guidance to reflect the behavior of newer customer cohorts, Snowflake remains optimistic about the stability and growth potential of its business in these industries.

🌍 Concerns about the Macro Impact

While the industries served by Snowflake may be susceptible to macroeconomic fluctuations, Snowflake does not currently view them as a cause for concern. The consumption within these industries remains strong, indicating that businesses are continuing to invest in Snowflake's solutions. The diversity of data sources that Snowflake connects to, including structured data from its own platform and textual data such as Wikipedia, positions Snowflake as a valuable resource for AI applications. As data continues to grow exponentially, Snowflake anticipates being a significant source for the generation of AI-driven applications.

🧱 Stability and Predictability of Snowflake's Business

Snowflake's business is evolving to become more stable and predictable as it positions itself as a platform for developers. By building on top of Snowflake, developers can leverage its abundant data to create innovative applications, including those powered by generative AI. Snowflake recognizes that generating Meaningful questions requires access to a vast amount of data, and it is actively working on connecting different data sources to facilitate this process. Snowflake's data ecosystem already attracts a large number of developers, paving the way for a future where the platform becomes a hub for AI-driven applications.

🚀 Snowflake as a Platform for Developers

Snowflake's strategic vision involves transitioning from being a data warehouse to becoming a platform that developers can build upon. This shift opens up new possibilities for Snowflake and its ecosystem of developers. By harnessing the power of generative AI, developers can create applications that generate questions based on their specific areas of interest. Snowflake's vast and diverse data resources enable developers to marry structured and textual data, enhancing the quality and depth of insights generated by their applications. While the business model around generative AI is still evolving, Snowflake's position as a provider of rich and varied data makes it a promising platform for developers.

💡 Expectations for Customer Behavior as the Economy Stabilizes

As the economy stabilizes, Snowflake expects to see a shift in customer behavior towards taking bigger Bites in terms of consumption. With better visibility and increased confidence in the economic climate, customers may be more inclined to invest in Snowflake's solutions. This will result in improved economics for Snowflake and a potential increase in the rate of consumption, driving growth for the business. However, the timing and extent of this shift will depend on various factors, including overall economic conditions and the business needs of Snowflake's customers.

👁️ Improving Visibility for Investors

Improving visibility is crucial for investors to understand the trajectory of Snowflake's business. Snowflake acknowledges the need for better visibility and the uncertainty faced by investors. Snowflake aims to provide clearer guidance and insights into customer behavior to help investors make informed decisions. By improving communication and addressing any concerns, Snowflake strives to build trust and transparency with its investors.

Highlights

• Snowflake has been ramping new customers, albeit at a slower pace.
• The alignment between bookings and consumption poses challenges for the business.
• Industries served by Snowflake, such as financial services and media, show resilience in consumption.
• Snowflake's transition into a platform for developers opens opportunities for generative AI applications.
• Visibility needs to improve to provide investors with a clearer understanding of Snowflake's business.

FAQs

Q: How is Snowflake's business impacted by the alignment of bookings and consumption? A: The misalignment between bookings and consumption presents challenges for Snowflake as it may affect the stability and growth of the business. While consumption remains strong, the slowdown in bookings raises concerns. However, Snowflake believes that the shift in customer behavior is temporary and that the terminal value of larger enterprises will drive stability and predictability in the long run.

Q: What industries does Snowflake serve? A: Snowflake serves industries such as financial services, media, and telecom. Although these industries may be impacted by macroeconomic factors, Snowflake remains optimistic about the resilience of consumption within these segments.

Q: How does Snowflake plan to become a platform for developers? A: Snowflake aims to transform into a platform that developers can build upon. By providing access to its vast data resources, Snowflake enables developers to create innovative applications, including those powered by generative AI.

Q: How does Snowflake anticipate customer behavior to change as the economy stabilizes? A: Snowflake expects that as the economy stabilizes, customers will be more inclined to take bigger bites in terms of consumption. With improved visibility and increased confidence, customers may invest more in Snowflake's solutions, leading to better economics for the business.

Q: What is Snowflake doing to improve visibility for investors? A: Snowflake recognizes the importance of improving visibility for investors. The company aims to provide clearer guidance and insights into customer behavior, addressing any concerns and striving to build trust and transparency.