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"The big money is not in the buying or selling, but in the waiting." Charlie Munger

Been a while since we discussed SNOW here. BRK owns about $1 billion worth of it purchased in 2020 for $735 million, so up about 40%. I assume it is a T&T holding. Once a high-flyer, the stock price is down about 13% for the past year. Sales are slowing and there is some new competition. On the plus side, it is still the market leader in cross-cloud integration. Very strong balance sheet and cash, very strong potential upside as AI becomes integrated into cloud environments.

Some said SNOW might grow forever and one day rival AAPL as a core BRK holding. This article argues BRK should sell. https://www.gurufocus.com/news/1949595/snowflake-w....

I bought a little on the side when it oversold and am trying to decide whether or not to keep it. Anyone have an opinion?

abromber

Been a while since we discussed SNOW here.

I purchased SNOW 1+ year ago. Still down a bit on my investment. I use parts of their product a few hours each workday (I write SQL code), on average. I work for a large financial services company who is a couple years into a migration to Snowflake, with data stored on AWS "behind the scenes".

My thoughts for the purchase:
* They have had high customer satisfaction ratings. I haven't had conversations outside of my small team (about 10 people), but we're happy with it.
* The migration is a long, tedious, and not inexpensive process. We still have data "on prem" that will eventually be migrated to Snowflake. We probably have a couple more years before we are fully migrated. So I can't see us migrating willy-nilly every few years. That makes me think SF has a "sticky" platform, and once they mature out of their "growth stage", they'll have a lot of pricing leverage.
* About the growth stage, I would think that could last a looong time. Every company of any size has wads of data that they are storing hoping to one day figure out a use for. Dunkin' Donuts is hiring data analysts. I interviewed w/ a small start-up to run their analytics team. Everyone has data, and I suspect SF ends up with a significant portion of it.

I'm not skilled at valuing companies, but my thoughts are that ORCL is a $300bil company, and SF is $50bil. I've used both and I like SF better. I could see SF being as large as ORCL is now. If SF reaches $300bil in 15 years then it would return over 12%/yr. 10 years would be nearly 20%/yr.

Am I crazy?

John

<The migration is a long, tedious, and not inexpensive process. >

Isn't that a big barrier for Oracle customers to switch to SF so it's unlikely SF will catch up with Oracle?

Isn't that a big barrier for Oracle customers to switch to SF so it's unlikely SF will catch up with Oracle?

I work around the space, and I don't get a lot of opportunities where BRK investment discussion and technology overlap.

Snowflake has a number of academic papers floating around, a few of which are quite good (PDFs, view at your own risk)
* https://event.cwi.nl/lsde/papers/p215-dageville-sn... "The Snowflake Elastic Data Warehouse" (slides from talk accompany paper here, https://15721.courses.cs.cmu.edu/spring2018/slides...)
* https://www.usenix.org/system/files/nsdi20-paper-v... "Building An Elastic Query Engine on Disaggregated Storage"

Migration is tedious but it's one time in nature. In this case you do it to reduce long term costs, which Snowflake does in ways the papers describe. Those papers are accessible but fairly technical, so to summarize it, they optimize storage efficiency (compression in "blob storage", or s3-like systems), adapting established data warehousing techniques to work with that storage architecture, decoupling storage from compute resources, and highly cost efficient compute utilization. To summarize further, they support extremely big data in generic cloud resources very efficiently.

The difficulty in chipping away at ORCL is the depth of integration into things like CRM, ERP, financials, ERM, and so on. I have the impression that the CRM/ERP/et al. data may reside in those system but gets replicated into SNOW and that SNOW runs a lot more data analysis oriented workloads, but I may be wrong. No need to scale up expensive Oracle systems to handle unrelated analytic workloads, and risk license noncompliance or audits, right?

I don't know why BRK has the SNOW position, out of all of their tech adjacent positions. It is a very high valuation and high risk (from disruption, many competitors can emerge in 10-15 years to grow into 20 P/S multiple. But I'd guess it came from the insurance operations, and from analyzing the future market for data, the structural cost advantage, and stickiness or cost to moving data out once they acquired a customer.

BRK owns about $1 billion worth of it purchased in 2020 for $735 million, so up about 40%. ...

Is that right?

cf. http://www.datahelper.com/mi/search.phtml?nofool=y...

I haven't dug into the relevant original documents myself, but if that post of DTB's is right, the purchase was ultimately 6,125,376 shares at $120.00 for $735.045 million.
With SNOW now trading at $149.50, that shareholding is now valued at about $915.7m, up only 24.6%.
So your "about $1 billion" sounds close, but the "up 40%" sounds dodgy.

Given the size of the IPO pop, it's not particularly surprising that the hype has worn off.
Which says nothing either way about the prospects of the firm, of course.

Jim

I haven't dug into the relevant original documents myself, but if that post of DTB's is right, the purchase was ultimately 6,125,376 shares at $120.00 for $735.045 million.
With SNOW now trading at $149.50, that shareholding is now valued at about $915.7m, up only 24.6%.



That sounds right. Here's Barron's, in January, when Snowflake shares were just a hair over the $120 IPO price: https://www.barrons.com/articles/warren-buffett-ch... (there's a paywall, but you can probably read the intro.)


By the way, it seems it may have been a Combs investment:

It's no surprise

In an interview with Yahoo! Finance Friday, Snowflake CEO Frank Slootman was asked about the Berkshire investment and what might have led the company to invest in Snowflake. Slootman had said that most of Snowflake's interactions had been with Todd Combs, one of Buffett's younger lieutenants.

Not only is Combs one of the chief investment officers at Berkshire, but he's also currently CEO of GEICO, the large auto insurer that's wholly owned by Berkshire. Apparently, Berkshire's insurance operations have used Snowflake's cloud-based data warehouse for some time, so Combs was probably intimately familiar with Snowflake's product and capabilities.

https://www.fool.com/investing/2020/09/20/now-we-k...

Isn't that a big barrier for Oracle customers to switch to SF

I assume it's a barrier, but I guess it can be breached, since that's exactly what my company is doing. The data we access via Oracle is on prem, and apparently we decided that the headache to move data to the cloud was worth it. For new companies or companies just starting to collect data that wouldn't be a barrier.

John

Berkshire purchased 2.09 million shares in the IPO at a price of $120/share, or $250.8 million, on Sept 16, 2020, plus an additional 4.04 million shares in a private transaction from former Snowflake CEO Robert Muglia at the opening price on the day of the IPO of $245/share, or $989.8 million. In total Berkshire owns 6.125 million shares of SNOW with a cost basis of $1,240.6 million, or $202.55/share.

Please enjoy the new Snowflake board:
https://www.shrewdm.com/MB?bid=1512

Created today for more Snowflake love at Shrewd'm.

- Manlobbi

Berkshire purchased 2.09 million shares in the IPO at a price of $120/share, or $250.8 million, on Sept 16, 2020, plus an additional 4.04 million shares in a private transaction from former Snowflake CEO Robert Muglia at the opening price on the day of the IPO of $245/share, or $989.8 million. In total Berkshire owns 6.125 million shares of SNOW with a cost basis of $1,240.6 million, or $202.55/share.


It is true that the opening price was $245, but the IPO price was $120. If you have a source for the idea that the additional shares were purchased at the opening price and not the IPO price, I'd be curious to see it.

But this is what the Snowflake PR said, on September 16:

SAN MATEO, Calif.--(BUSINESS WIRE)-- Snowflake, the cloud data platform, today announced the pricing of its initial public offering of 28,000,000 shares of Class A common stock at a price to the public of $120.00 per share.

The shares are expected to begin trading on the New York Stock Exchange under the ticker symbol 'SNOW' on September 16, 2020, and the offering is expected to close on September 18, 2020, subject to customary closing conditions. In addition, Snowflake has granted the underwriters a 30-day option to purchase up to 4,200,000 additional shares of Class A common stock at the initial public offering price less underwriting discounts and commissions.


My understanding is that Berkshire is one of the underwriters mentioned in that last sentence, and that they bought 4.04 million of those additional 4.2 million shares, but it would be nice to see a confirmation from Berkshire that this is so. Well, there's this on the S&P site that seems to confirm that the 4.04 million shares were to be sold at the IPO price, not the opening price.:

Furthermore, Berkshire has agreed to purchase 4,042,043 shares from a Snowflake stockholder at the IPO price in a secondary private placement, which will close with the main offering, the company disclosed in a registration statement.

https://www.spglobal.com/marketintelligence/en/new...


So it looks like all Berkshire's shares were bought at $120.

Regards, DTB

Please enjoy the new Snowflake board:
https://www.shrewdm.com/MB?bid=1512

Created today for more Snowflake love at Shrewd'm.

Thank you! I copied my post over there in case anyone wants to discuss Snowflake further off-board.

"If you have a source for the idea that the additional shares were purchased at the opening price and not the IPO price, I'd be curious to see it."

I can't find that reference right now. Most references say Muglia sold at $120, although whalewisdom.com says the estimated price paid was $238.

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