Snowflake Inc. (SNOW) Earnings Call Transcript & Summary

All right. Great. Why don't we go ahead and get started. So we're just delighted to have Snowflake with us here at The Citizens JMP Technology Conference at the Ritz Carlton Hotel in San Francisco. And thank you to Mike Scarpelli for coming and spending some time with us. How are you doing?

I'm good, other than that light is blinding me right now. It's terrible.

I know. It's blinding. I was -- I know. I know. I know.

So if I'm not looking there, it's because I can't really see.

It is blinding. We're just going to dive into it. All right. Let's start at the top.

How's business?

It's good.

It is good, right? In fact, it was great, right? Like, is that overstating it? It seemed like Q4 was pretty great.

Q4 was good from a bookings standpoint.

Yes.

A little bit lighter on the revenue than what, internally, I was forecasting. And I think that was just because it seemed like there was more of a prolonged holiday impact. The last week or 2 of January is kind of where we expected, but it's a little bit slower in the first part of January.

Okay. Why was that?

It's the nature of the consumption business. It really is.

This whole projecting these, turns out they're really difficult to project.

It is definitely a lot more difficult to predict. When you're in a SaaS business, you know to the penny, 97% of your revenue at the start of a quarter. That's not the case with us. And it really is human interaction with our system. Yes, about 70% of the work is scheduled work, but that human interaction has a big impact on consumption.

Okay. And so…

By the way, it was still good. It just was slightly less than what we would have expected internally. Bookings were phenomenal. It was a record bookings quarter. We signed some really big deals. A lot of people have asked us, I mean, you've drained the pipeline of big -- no, we have a lot of customers this quarter. I know 3 of my top 10 customers have to do something this quarter. So -- but bookings doesn't mean revenue. Bookings is just showing you the customer commitment to Snowflake longer term. And -- but revenue is -- it's where we expect it to be right now. I feel good about that. And we have a new CEO starting.

Oh, yes. We're going to get into that.

We have a lot of new products coming on board. And I think the guidance is appropriate coming into a new year with all the change that we have. And we'll see where we are at the end of the quarter.

Yes, yes. Okay. So stock's off basically 20% from what you reported primarily, I think, because of Frank leaving, the CEO change. When did you know that there is going to be a CEO change?

We never know until he actually signs his employment agreement and Frank resigns, which happened on Tuesday. But I've been through a few CEO transitions. And Frank, all along, when he joined the company, he said, "There is a time frame that I'm looking at here. It's not cast in stone, but we need to -- at the Board, we need to really take succession serious," because Frank believes that, that is one of the primary roles of the Board is succession planning, hiring, firing the CEO. And we've been talking about it at the Board for 2 years now, looking at both external and internal candidates. And when we acquired Neeva last May, I remember telling Frank, you've got to spend some time with Sridhar, and Frank quickly did. And we brought Sridhar onto our executive staff, and he quickly was running all of our AI and ML initiatives and the more time Frank and the Board spent with him, we realized that he could be a successor to Frank. And then talking about timing. The reality is, is good people don't sit around. They have other options. And if we -- if Sridhar were not the CEO here, I would just tell you, he'd be working at a very large company, maybe running all their AI Initiatives, so.

What's he like?

Sridhar is a driven individual. He's a -- first of all, he's a super nice human being and humble, but don't mistake that with being soft. He is really driven. And he is very much about -- his big focus is we need to get product to market quicker. Why? Sales needs more product and he's all about sales enablement, is making sure our sales team, our SEs really are up to speed on our new products and know how to sell them. A lot of people mistake that he's a technologist and doesn't have operational chops. He ran a very, very, very large team at Google. It had, like, 12,000 people in it. And he scaled that business to $120 billion in revenue when he left. He was very much involved in…

Say that part again, because he's like -- so there were 12,000 employees…

$120 billion.

And $120 billion of revenue. Google's, what, roughly $300 billion, right? So, yes.

The ad business, that's where they make all their money. Scaled that from $1.5 billion to $120 billion. So he's ran big organizations before.

How many employees are there at Snowflake right now, ballpark?

7,300, something like that.

Yes. Okay. How did your staying or leaving, committing for the 3 years fit into this conversation? When -- who discussed that with you? And when did that happen?

I've had conversations with Sridhar and our Board and Sridhar would like me to stay indefinitely. But I'm like, Sridhar, we haven't even worked that closely together again, so I'll commit that I'll stay for 3 years, at least. But I'm also a big boy that if you think there's someone better, hire someone. I'm good to retire when you want -- if you want me to retire sooner. I will tell you, I'm not going to go into another operational role, though.

You're done.

I'm too old.

What comes next?

I have enough to do on my own without managing all the people I manage, so.

Okay. So Sridhar, he has got his PhD from Brown, right? He spent an enormous amount of time at Google, doing basically the most AI intensive stuff.

His PhD is in databases.

Is it?

Yes.

And did you feel that the way the market -- or did the Board feel that the way the market is evolving, it's important to have someone with those kinds of technical chops at the helm?

We felt, with where the company is and where it's going, you need to have someone with strong technical background to be able to run the company to help be able to attract good people as well too. He's very, very good at attracting the top technical talent. Without him, we wouldn't have got the 5 people out of Microsoft, the DeepSpeed team that he hired to come and help with our AI initiatives.

When did that happen?

That happened 5 months ago -- 4 or 5 months ago.

I think I might have missed that, which is terrible, but...

I think last quarter, the last person just onboarded.

Yes. So who is this team out of Microsoft? And what's their...

It's called their DeepSpeed team. Well, 5 of the core engineers there. They're very expensive people.

I shuddered to think. Okay. What is a sort of -- low level, you just got your PhD data scientist go for? And then what does an experienced DeepSpeed type one, what's the market for this kind of talent?

Some of these people you're talking when you're looking at the whole package coming together, it's $3 million, $4 million a year. A lot of that's equity, just you know.

Yes, yes. And so Sridhar, he's really -- you said his big focus is we got to get products to market faster, so we can put them in the hands of salespeople so they can sell them, right?

Yes.

Demand is not really the problem.

No.

Yes. So demand is not the problem. Were they not -- were you guys not getting them to market fast enough before? And what were the roadblocks?

Listen, this is the year that we're delivering the most product.

Well, that's my -- that's what I was thinking.

No, no, no. Let me just…

No? Okay. Sorry, go ahead.

You see Unistore, we announced Unistore 2 years ago, and we're just going to deliver that now. We need to shorten that time frame. Snowpark, there was a lot of stuff we've learned. Even though we went into GA, we've learned a lot of stuff with the migrations we were doing that we had to do more work on the product. So Cortex is one of the main things that Sridhar and his team really delivered. They delivered that into private preview in 7 months from the start. It will go into -- it's going to public preview right now and will be GA by Summit. That's a lot faster. That's what he's trying to do without sacrificing quality. Now you can't do that with all things. Some things just take time like Unistore. There was a lot that we learned. That was a 4-year process. But we now think we have that right.

So Unistore in then is 4 years and Cortex is basically a year?

Yes, not even a year.

Not even a year. So that's the order of magnitude we're talking about.

Yes.

What are some of the things -- you said, we learned a lot on Unistore. We've learned a lot on Snowpark. What are examples of some of the things you learned?

Well, I would say on Unistore, the performance that was required for certain things and having to take costs out. Because the costs were so high relative to -- to get to that performance, that -- we underestimated that. I would say one of the things that we -- Snowpark was really -- the product was missing certain capabilities, and I'm not an expert to go through those capabilities. That'd would be a better thing to ask Christian or Sridhar. The other thing that we made a mistake in terms of the data scientist persona, they really want a notebook. We were leading towards partnering with people like Hex and others. And we really realize from customers, they want us to have a notebook and they just want to have it to be able to use. They don't want to have to go procure it from someone else. So we have been working on a notebook for some time now that will be in public preview very, very, very soon.

I can't remember who it was, but I was talking to one of your partners. He told me there's one of these notebook companies that works well. Then Snowflake has gone from $3 million to $12 million in, like, some incredibly short period of time.

Hex probably.

Yes.

Yes.

So -- but that's not an issue though. That's pretty core.

Yes, yes. Data scientists want a notebook to play with.

Yes. Okay. So how do you feel about -- how are you feeling about the business? Sort of new leadership, speed of getting products to market…

I…

Losing Frank's fairly awesome set of go-to-market execution skills, when you balance it all out, how do you feel about it?

What I would say is everyone has this perception that Frank is driving all the sales.

It's true. We do have that presumption. It's not the case?

So when Frank joined the company, there were maybe 1,000 people and the whole go-to-market had to get it realigned, and he was instrumental in doing that. But we have a team of people that are intimately involved in the selling. And yes, Frank talks to a lot of CEOs and stuff, but he's actually not selling. There are many, many, many people who are doing that. So I'm actually excited about Sridhar coming, because he is so driven. He's actually in the office every day. He's interacting with people, and Frank wasn't in the office as much as what people think, so.

Which office are we talking about that Sridhar is in?

San Mateo office.

Right. Okay. Great. That's great. Where are you most of the time?

I split my time between the Dublin office, San Mateo, and the last 2 weeks, I was in our Bozeman office. We do our earnings and stuff there and I'm just working out of there.

Where do you live though?

It depends where I have to be.

Okay. But, all right, let me ask it differently. So over the next couple of years, where do you think you're going to be spending more of your time?

I'm definitely in California a lot if I'm not traveling. So like I'm heading out on Sunday for 2 -- or Saturday, 2 weeks for Asia, in front of customers, doing a lot of stuff, so.

Yes. So I was doing some interview and it was the day that your -- I was being interviewed about something else, but your stock was down the next day, and I got a question about it, and I said, go back and look where ServiceNow stock price was when Frank left. It was $80. And pull up where ServiceNow's stock price is today, and -- on the day that of that interview, it was $780, right?

Well…

Let me finish. So I think we're going to be good, right? Frank leaving is not a sign that what is a great company on a great trajectory suddenly is -- that trajectory is derailed. How good is my analogy?

They're very different businesses.

Yes.

But I think Frank would tell you, he'd be upset if the stock traded up on his announcement of his departure, so I don't think anyone likes change. Investors really seem to like Frank, but just like me and -- we're just 1 person out of many on the team. It's a big organization. And I do think -- I personally think the selection of Sridhar as the CEO is the right choice for what the company really needs. And I think that you saw ServiceNow did really well when McDermott came on Board. He's very much a sales-driven CEO. I think John Donahoe is a great -- he's a really good human being and but he is not a technology guy. And Frank, when we started talking about succession, he was adamant it had to be someone that was deep in technical chops and that with operational skills and Sridhar, from everyone we saw, is the right person. And we whiteboard-ed many of the top technology people in the world when we were kind of planning out who is the right person to go after.

What's the -- if you just simplify it, right? So if you're coming from a position where you really own the cloud, the Data Cloud and you want to move more into where Snowpark is, right, what's the fundamental sort advantages that you have from having the data…

I would say Snowpark is fundamental to the cloud data platform that we want to be. And I would say the biggest place we are moving is some of the things around generative AI that Sridhar is planning on doing. He envisions a world where a business analyst can just ask a question in simple English that can be translated into SQL code to get answers out of your data. That is what his vision is using AI. That's a good vision. And the other thing, too, and what was really attractive about buying Neeva for us is customers don't understand all the data they have. And being able to find data, this enterprise search capabilities that Neeva built are core to what we are rolling out as well, too. That's another thing. And not just within your own data, we've heard this from customers for years. We have over -- I don't -- don't quote me on this, but I think we have over 1,800 different data set listings in our marketplace. Well, customers don't know what is there, but also, through the use of AI, what data sets may be relevant to you, Mr. Customer, based upon what we're seeing in your data. That's what he's working on doing. And that, I think, is going to be really meaningful. It's not going to happen overnight, but that's what the team is working on.

Right, make sure I understood it right. So number one was instead of this idea of creating a place where all data scientists can come and do all their stuff, the vision is, no, just make it so that the business analysts can just talk to their data and get an answer that you otherwise need data scientist to get, right?

Correct. Correct.

Okay. Check. And then the second piece was around Neeva's -- it was supposed to be basically a replacement for Google, right?

It was originally going after consumer search, and then they pivoted and said, we're going to go after enterprise search.

Okay. I didn't realize that...

And then taking that enterprise search capabilities into Snowflake for our customers, both within their own internal data but then also looking at the marketplace, but being able to understand what data could be relevant to you based upon your -- types of data that you have.

How are you supposed to figure that out now today?

Right now, it's the human that has to figure that out. That's the issue.

And there's 1,800 data sets.

Data sets, yes.

So it's pretty overwhelming. All right. Great. So the other question I've got -- oh, you know what, maybe I'm going to stop. Does anyone in our audience have questions for Mike?

I like your questions better. They're easier.

No, probably. Yes, the hard ones always come from the audience.

Silence…

Usually -- honestly, I tell my associates to count the 10 and then they have to ask a question. So -- but I think is it possible none of them are in here? Oh, there we go.

So I was wondering on a few of the products that aren't in your guidance? Your Snowpark is 3% of product revenue. What other products that aren't included that you think have the highest potential to outperform data services or something else?

For the current year? Or longer term?

Current year and longer term.

Current year, Cortex could be meaningful because that will drive a lot of compute and GPU compute if customers are bringing their large language model of choice into Snowflake to fine-tune that data. Longer term, Snowpark Container Services really enables native app developers on Snowflake to bring their applications in Snowflake monetize them through the marketplace and that will have a very large impact. Unistore has the potential, not necessarily this year. We'll start to see consumption ramp up. But longer term, Unistore will be big. We are starting to see Dynamic Tables ramp up. That's not in GA yet, but just based upon the public preview that we've seen, there's an uptake on that we're starting to see right now. Streamlit is another one, too, that is GA this year. And we're starting to see more and more customers use that. But definitely, Cortex would be the -- I think, the most meaningful driver this year of revenue.

When you did the guidance for this year, what assumptions did you make that could turn out to be conservative that maybe gave a little more headroom for your new CEO?

Assuming similar consumption patterns that we saw in 2024, and I would say the low was probably Q2 of 2024, not factoring anything associated with the new products we have coming on. And if our assumptions on the product headwinds associated with the timing of new performance improvements and migrations of hardware platforms where there's improvements that gets delayed, that could be --cause conservatism.

All right. So number one was consumption was brutal last year and you're assuming that for this year, right?

Well, not the whole year, but we're still -- we're not assuming any type of rebound or anything this year, similar consumption to last year.

Yes. And then nothing on the new products, and that includes Cortex, which you just told us could be meaningful this year.

Yes.

And then what was the third one?

The third one, now I'm going blank on what I said the third one was.

I didn't get it down.

Well, you're too slow. Sorry. Now, I forget. I'm getting old. See, I'm getting old.

All right. Mike, thanks so much for coming. We really appreciate having you here.

No problem. Thank you.

Yes, it's good to see you.