Snowflake (NYSE:SNOW) is one of the hottest initial public offerings and that’s in no small part due to Warren Buffett.
Indeed, one of the backers of SNOW is the Oracle of Omaha’s Berkshire Hathaway (NYSE:BRK.B). According to Business Insider, the conglomerate owns approximately 6.1 million Class A shares. What’s more remarkable, though, is that Buffett has consistently avoided high-flying, loss-making technology plays and IPOs, instead preferring more stable and reliable investments.
That the legendary investor is changing his tune – and putting his money where his mouth is, so to speak – has given SNOW an extra sentiment boost. Further, as this recent IPO continues to trade during these uncertain times, Buffett’s vote of confidence may inspire additional purchases.
As a comprehensive data analytics and warehousing specialist, I can see exactly why many are excited about Snowflake. During my career working with some of the biggest retailers in the world, I relied heavily on data science platforms.
For instance, one of the observations my team made through analytics was the correlation between product packaging size and increased sales in the U.S. market. Though exterior packaging was of little concern abroad, at home, consumers equate larger size with importance. Thus, it made sense to request our packaging facility to design larger surface-area packages.
While this observation could be made qualitatively, it wasn’t until my team used data science to quantify such trends and therefore justify making a strong business decision. Today, multiple businesses, especially retailers that are levered to seasonality and consumer behaviors, are simply dead in the water without data analytics.
From this context, it’s easy to understand why investors are excited about the Snowflake IPO. At the same time, this enthusiasm hides a lingering concern about this market debut.
For SNOW Stock, It’s the “Why” and Not the “What” That Matters
As you know, we live in a world of data. This has presented incredible opportunities for those that know how to harness this wealth of information. But turning this data mine into actual wealth is what separates true data analytics firms from the pretenders.
It’s here that Snowflake is incredibly prescient and frankly refreshing. According to its website, SNOW points out that “Your data scientists spend 80% of their time searching for and preparing data. Imagine their business impact without that burden.”
Exactly. Say no more.
In many ways, most of us perform data science. Technically, many of my InvestorPlace articles, including my comparison of Plug Power (NASDAQ:PLUG) and Tesla (NASDAQ:TSLA) involves some of the principles of this discipline.
Using the above example, I argued that the same sentiment that has driven TSLA shares to blistering heights this year applies to PLUG as well. Fundamentally, this makes sense as both companies make vehicles powered by alternative energy sources. But my justification for making this argument was the strong correlation coefficient between the two securities’ price action this year.
Establishing that a mathematical correlation exists, I then noted that both companies’ price charts show different but nevertheless bullish formations. It’s data science that allowed me to quantify this observation, the same science underlining SNOW.
And yes, Snowflake is correct – it takes a lot of effort digging up the data points. Imagine that in a much greater scale and you can see why SNOW has attracted so much attention.
However, Snowflake is answering the “what” of this question – creating a platform to generate data inquiries quickly. But the “why” is where true innovation begins. In other words, data science is only as good as the question (input) you ask.
To be fair, I’m not sure if any data analytics software is even close to being adequate enough to address the “why” conundrum. Unfortunately, this means that any software solution will be subject to commoditization until that groundbreaking innovation is forwarded, if ever.
Beware the Commoditization
Now please don’t misread this as a takedown on SNOW. As a product, I believe Snowflake has done an excellent job. If I were back in consumer retail management, I would probably use its platform. However, people should separate the product acumen and the investment proposition of SNOW shares.
For one thing, we’ve seen other hot data solutions companies languish following their IPO. For instance, Cloudera (NYSE:CLDR) got off to a brilliant start. Due to the company’s early adoption of network-distributed computing platforms that enabled enterprise clients to make practical use of massive volumes of unstructured data, CLDR was on fire.
Later, however, Cloudera faced competition from cloud services providers like Amazon (NASDAQ:AMZN) and Microsoft (NASDAQ:MSFT). Additionally, Cloudera was entangled by its commitment to legacy platforms while simultaneously building its cloud-based solutions. With Snowflake, it has no such encumberment, operating exclusively in the cloud.
Still, the bigger problem is that Cloudera was focusing on building a better “what.” Grammatically and conceptually, “whats” are commodities. On the other hand, “why” is the beginning of learning and intelligence.
Like I said, we are not at the point where computers can ask the “why” for us. Instead, we must make do with quicker and more convenient “whats.” Right now, SNOW is the quickest “what” around. But that is not a stable ground to walk on.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.