Unlike its SaaS peers struggling in the valuation slaughter, Snowflake just had its best quarter ever since IPO. Performance was strong across all metrics and well ahead of consensus. Product revenue accelerated 110%, up from 103% in the previous quarter and 19% ahead of consensus. For a company that doesn't guide too conservatively, it was a jaw-dropping outperformance for themselves as well. As a reference, the growth trajectory of product revenue for the past three quarters has been: 110% - 103% - 110%. And historically, the company beat consensus by no more than 5-7%. The market was up 14% in premarket trading following a phenomenal print. It is funny that in the Q&A, the CFO said he was disappointed in the magnitude of the beat. "I'm sure you guys would love it. I don't expect you're going to see that same repeat of a beat."

Regardless of numbers, the key to understanding what makes Snowflake so infectious is the "Ecosystem," built to let developers prosper. In October, the Snowflake Built Summit had over 20,000 data scientists, 3x over last year. It is essential to take over developer/data scientist's mind share because people eventually decide how much they want to use the product. Having their attention, getting them used to your product is key to retention and more usage. We cannot emphasize this enough for all developer-facing companies.

By ecosystem, We're also referring to Snowflake's partnership ecosystem. It is not a coincidence that many of Snowflake's partners end up being their biggest customers. In June, Snowflake launched a "Power by Snowflake" program to help companies build applications in the data cloud. Over 175 companies are using it to design applications within five months, including UiPath, ZoomInfo, etc. One of the companies made it to the top 10 customers list. Snowflake also offers access to technical experts, partner capabilities, and integration for partners. DataIQ, Datarobot, H2O.ai are good examples of beneficiaries. 

The last component of the ecosystem is Snowflake's Data marketplace. They let external parties share data through the Snowflake marketplace such that customers can query and run analytics at much lower costs. Snowflake is going vertical to execute this plan. In the recent quarter, Snowflake announced two industry data clouds: the financial services cloud helps financial services companies to mobilize their data. Customers can build products on top of Snowflake; the media data cloud allows media companies to share data for audience insights and measurements. Snowflake is partnering with Disney for secure advertising, a compelling way to access more customers through the existing customer network. 

Another call-out is its customer consumption pattern. The game has always been "mature customers spend more." 5 out of the top 10 customers grew faster than 110% during this quarter. They added 32 customers to the cohort of >$1m in TTM product revenue, totaling 148. The playbook to sell multi-year large contracts is getting better: they sold five new 8-figure multi-year deals this quarter. I see this is a vital sign of organizations getting comfortable with their use of Snowflake on a long-term basis.

DRIVING SIGNIFICANT CUSTOMER RELATIONSHIPS

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DRIVING SIGNIFICANT CUSTOMER RELATIONSHIPS

Going back to the numbers. A huge consumption increase supported revenue growth; NDR increased to 173% vs. 169% in the previous quarter. Large mature customers drove the substantial expansion: >$1M customer count increased from 116 to 148. International revenue in EMEA and APAC growth was also very stunning, up 174% and 219%, respectively. On the margin side, for the first time, the company has turned positive non-GAAP operating income, well ahead of the consensus (6.9%) margin. The gross margin sits well at 75%, well above 63% in FY 2020. Management says this is due to favorable pricing terms with cloud service providers. 

Some final thoughts: 1) The outperformance proves that it's tough to predict the future of the consumption-based model. I have never seen 170% NDR in my career, yet the potential of a great company makes me believe what was previously thought impossible. 2) I would watch for the slow down in new customer adoption. Snowflake added 426 total customers this quarter vs. 458 in the previous quarter, and they also added 4 F500 customers vs. 18 customers in the previous quarter.