Snowflake CEO on first earnings report, data cloud outlook

Yahoo Finance’s Brian Sozzi, Myles Udland, and Julie Hyman speak with Snowflake CEO Frank Slootman about the company’s first earnings report since its IPO, and future outlook.

Video Transcript

BRIAN SOZZI: One of the hottest IPOs of 2020 just had its first earnings report as a public company, and that is none other than data cloud play Snowflake, which posted triple digit sales growth in the third quarter. Snowflake's CEO Frank Slootman joins us now. Good to see you again, Frank. It feels as though the IPO was yesterday, but clearly it was not. You said something very interesting on your earnings call this week. Quote, "The pandemic has been more or less neutral to our business." Not a lot of companies can say that. Why do you think that's the case with Snowflake?

FRANK SLOOTMAN: There's-- there's pluses and minuses. You know, on the negative side, obviously, we're affected like anybody else by industries that, you know, like aviation and travel and so on. That, you know, that's the outgoing tide. There's almost no defense against that. But on a plus side, you know, people have accelerated their data platform initiatives. And the reason is when you have a dislocation the magnitude of a health crisis like this, all of a sudden it's like, you know, we don't know how to make sense of our markets anymore.

We don't know where demand is. We don't know where demand is not. So now we need to become data driven, data oriented. We need to get a data culture. We need to get data science capabilities. And people also, I mean, this may sound strange, but they all of a sudden have more time to concentrate on this than they have before. In other words, the priorities have shifted around. So we should definitely see an increased interest in data analytics as a function of this crisis.

MYLES UDLAND: Frank, I want to stick with something you said on the call, and both you and your CFO reiterated it at the top of your remarks that it's a consumption model. It's not a SaaS model that Snowflake is operating. I'm curious why you felt compelled to kind of reiterate to analysts here's how we actually think about the business. I mean, are people calling you guys up and saying, hey, I love the SaaS play, and you have to tell everybody that that's not exactly how this works?

FRANK SLOOTMAN: Well, the reason that we keep reiterating it is because, you know, the sell side is struggling to, you know, fully grasp the business model, which then, you know, results in the wrong characterization of how our business develops. You know, for example, you know, on the whole topic of guidance, people think that we can just sell more and then we'll, you know, we'll guide higher. And with the consumption model, you know, selling doesn't help you, OK?

[LAUGHTER]

I mean, the consumption model is the same as the utility company. And the only thing that turns into revenue is what our customers consume, and we obviously have a very different level of influence on consumption patterns at our customers than when it's a completely sales flash distribution driven business. So it's a super important concept for people to get their head around, and we're one of the very few newest pure play companies that are completely consumption based. So there's a little bit of getting used to for the industry here.

JULIE HYMAN: Frank, it's Julie here. I love that analogy. I find that helpful of a utility company. As I understand it, some of your vendors are also your competitors, if I've got that right, a company like AWS, for example, Amazon Web Services. Is that a concern for you that at some point, they will try to pivot to be more of a competitor and somehow squeeze you on the vendor side?

FRANK SLOOTMAN: You know, obviously, it's always a concern, and we've certainly known that from even before I joined the company. It's a dynamic that is just always there. It's like a sword hanging over your head. Well, here's the good news, you know, certainly Amazon and Microsoft are platform companies, meaning that they want to be a platform, they want innovation on their platforms, and that means it's not just going to be Amazon products or just going to be Microsoft products. So they want their customers to have choices, and you may have heard Andy Jassy the other day saying on CNBC that he's just as happy to have, you know, Snowflake on AWS as Amazon's own product.

And the reason is we're both driving consumption on the platform, so, you know, economically, it's not that different. And we've also matured, you know, even though we're super young. All of us in this business, we have matured in terms of how we react to each other. Because some days we're a big customer of theirs, the next day we're a big partner, because we're moving workloads to the cloud. And then the day after, yeah, we're competing. But competition makes all of us better, and that's another benefit for our customers. And customers have choice, that's even more important.

BRIAN SOZZI: Frank, you've been talking a lot about the data cloud. In fact, your book that is out now is on the data cloud. What is the data cloud, and how will that transform your business?

FRANK SLOOTMAN: The data cloud combines world-class execution in terms of all the data operations on the one hand with data access, and these two elements are really important together, because what has happened in our business is everybody talks about the workload execution characteristics. You know, is it fast? Is it efficient? Is it governed?

But data access is the other huge elephant in the room, and the reason is the workloads of the past are not going to be the same as the workloads of the future. The workloads of the future are going to be data sciences, and data sciences are going to have very different needs, and they need unfettered access of data wherever it is, wherever it lives. The real problem with data, historically, has been that even though we have infrastructure clouds, like AWS and Microsoft Azure and Google Cloud and so on, and we have tons of application clouds in terms of all the SaaS companies that are out there.

Data has been fragmented into a million places. It lives in all these clouds. It lives on premise. It's been extremely difficult since the beginning of computing to drive analytical perspective and signals out and across all these different sources. So we said, you know, we can't keep doing this, because we'll never realize the potential of data sciences if that data can't come together, and the data cloud is all about the combination of execution with unfettered global data access. It doesn't matter what geography, it doesn't matter, you know, where the data originally came from, it doesn't matter what cloud you're on, and that's, we emphasize that really aggressively, because otherwise, you know, 10 years from now, everybody will be in the same place they were 10 years ago, and we have maybe modernized, but we have not transformed.

BRIAN SOZZI: Frank, is Snowflake selling essentially the next service in tech that companies are just going to have to need? You know, and I bring that up, because you were able to raise prices in the most recent quarter, and from listening to the earnings calls, suggested you may be looking at more price increases for what you do. How essential is what Snowflake sells?

FRANK SLOOTMAN: Snowflake is 100% essential, and I'm not just saying that because we're Snowflake. If you look at the history of computing, I mean, the data layer is obviously absolutely crucial and essential. That's where the likes and the large database companies of the past where Microsoft and Oracle and so on, the database companies of the future are the likes of Snowflake, because we're completely cloud native, reimagined for the cloud. It's generationally completely different, but still a data layer in the stack, right? That hasn't changed. So it is absolutely 100% essential. There's no way around the data layer in your stack.

MYLES UDLAND: And Frank, finally, I just want to ask about M&A and how you guys are looking at that. I know you mentioned on the call continuing just to kind of see what's out there, but are valuations in the space or any companies that you've looked at maybe a little more expensive than you'd like given kind of how, you know, private market, public market investors have been looking at sort of smaller data enterprise type plays just in the last few months?

FRANK SLOOTMAN: Well, you know, we're all inflated in our valuations, so the targets are getting more expensive, you know as well. So it's all relative, you know, after a while. We obviously raised a lot of money in our IPO in part, because if we wanted to make a move that costs a lot of money, that would be among the options, not something that we're culturally disposed to. We like to acquire talent slash technology. We don't like to buy businesses, because we know how to generate revenue ourselves, so we really want to buy the stem cells, if you will, and then we're going to grow those.

We're going to re-platform it the Snowflake way. It's going to become completely native, and customers will never be able to tell, you know, what was required and what was built by us, so that's generally our orientation. We're continually evaluating companies all the time, and you know, we reject a lot of them, because, you know, we're sometimes just picky and hard to convince and all that, but we're looking at a lot of stuff non-stop.

BRIAN SOZZI: All right, we'll leave it there. Snowflake CEO Frank Slootman, good to see you. Looking forward to catching up on the next earnings call, and good luck with the book.

FRANK SLOOTMAN: Thank you.