By Sam Boughedda
Wells Fargo analysts initiated coverage of Snowflake Inc (NYSE:SNOW) at Overweight with a $170 price target in a note to clients on Friday.
The analysts acknowledged the recent market downturn but stated that some companies are better built to endure it. They added that Snowflake's shares have traded off nearly 60% trailing 12 months (vs. NASDAQ -32%) as valuation levels across software have come into question over the past year and concerns around headwinds to cloud consumption models have surfaced.
However, Wells Fargo's "work suggests SNOW is better built to weather this storm given the company's mission-critical technology, strong expansion dynamics inherent to this model (DBNE >160% MRQ) and impressively well-balanced financial profile," which they view as deserving of a premium.
"Snowflake has greatly expanded its addressable use cases over the past few years, benefiting from its independently scalable but integrated architecture (separation of storage and compute). This has enabled favorable pricing relative to legacy peers and a modern approach to leveraging data," the analysts argue. "Snowflake has seen product revenues more than double in each of the last four years. Snowflake's success has largely been carried by the market's rapid shift to the public cloud, where key partnerships with hyperscalers AWS (~80% of revs), Azure (~18% of revs), and GCP (~2% of revs) have enabled the company to see industry-leading growth rates."
They concluded that the firm's 2023 software outlook expects the investor pendulum to ultimately swing back towards growth throughout the year, and they see Snowflake as among the most direct beneficiaries, with its current valuation levels and preliminary FY24 targets also helping provide downside support.