Last year, Warren Buffett disclosed his position in the cloud-data company, Snowflake (NASDAQ:SNOW). While he may be doing very well with a hefty gain, selling for a quick win is not really Warren’s style. His investment philosophy is to hold great companies “forever.” Therefore even at current prices SNOW stock still has plenty of room to run.
SNOW stock has been on an uptrend since May when it hit its all-time lows of $200. As the stock is trading above its 50-day, 100-day and 200-day moving averages, the uptrend is quite clear.
It’s easy to see why there is such enthusiasm for the stock given the latest company developments.
I believe SNOW stock is an investment to consider for the long-term and here is why.
Unique Solution for Financial Services
Snowflake is continuing its push into the financial services space. The company recently announced its Financial Services Data Cloud which is tailor-made to address the needs and concerns of cloud services for the financial services industry. Unlike other enterprise customers, Financial service firms have unique requirements due to the nature of their business and government regulations.
Ever since the 2008 financial crisis, these firms have been under intense regulatory scrutiny. Furthermore leading financial institutions are also under competitive pressure from new fintech start-ups. These legacy institutions need to update their technology and service offerings or risk sinking into irrelevance. This is where Snowflake’s solution comes in.
Snowflake offers a single platform that is flexible and able to connect other databases and securely share information. The company’s cloud solution has passed the EDM Council’s Cloud Data Management Capabilities Framework. This framework is a comprehensive set of industry-standard guidelines for financial services firms looking to move their data into the cloud.
The company is continuing to innovate in this space. Snowflake has a strategic collaboration with Citi (NYSE:C). The partnership is looking to streamline the post-trade process which is a bit of a headache for financial services firms. Post-trade analysis and reconciliation is often a cumbersome process involving manual steps and multiple systems.
According to Okan Pekin, global head of Citi Securities Services, “Clearly, if we were to start afresh, we would not design market transaction data workflows in the way they function today. In partnership with Snowflake, we are striving to provide solutions to the challenge of multiple records across multiple systems and the associated costs and data reconciliation consequences that hinder our clients and the industry today.”
Addressing Massive Market
The financial services industry can end up being a particularly strong market for Snowflake. The financial services cloud market is forecast to grow to $46 billion by 2023. Given the technologies enabled by the cloud, I can see financial services being a very sticky service offering from Snowflake. There are strict regulatory requirements that financial services firms need to adhere to. Therefore it will be hard for competing cloud service providers to simply offer vanilla products as an alternative.
I can also see Snowflake cornering a large portion of this market. Product revenue from financial services is growing rapidly at a rate of more than 100% year over year. Furthermore more than half of these firms in the Fortune 500 are using Snowflake. The company is using a “pay as you use” model. Therefore I believe apart from growing its customer list, Snowflake can also increase revenue by increasing its revenue per client. I believe this can accelerate once initiatives like the partnership with Citi yield results.
SNOW Stock Takeaway
SNOW stock is a bit expensive, trading at a market capitalization of $96.7 billion against $592 million in revenue. However, the company has locked in multiples of that in contracts and is only going to grow from here. With its client base of Fortune 500 companies and Financial Services initiative, I believe there is still plenty of upside for SNOW stock.
On the date of publication, Joseph Nograles held a long position in SNOW. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
