Snowflake, a cloud-based data warehousing startup, was among the herd of companies that filed an S-1 this week.
First, just what does cloud-based data warehousing mean? Essentially, Snowflake has figured out a way to store enormous amounts of data in the cloud and enable quick and flexible access to that data – all while maintaining security and compliance. And that makes it valuable to companies across a variety of industries, including financial services.
And of course, since fintech is our thing, we dug into its filing in an effort to understand just how big of a role the Silicon Valley-based company plays in the space. What we found was enlightening: Snowflake provides cloud capabilities for hundreds of companies in the financial services space. In fact, finserv companies – including banks, brokerages, insurers and fintech startups – are among some of its biggest customers. They include AXA, Bankrate, Capital One, CapSpecialty, Chime and Experian, among others.
On its website, Snowflake says it can be valuable to financial services organizations facing data management and analytics challenges such as
- Securely moving analytics to the cloud
- A surge in the amount and variety of available data for analysis
- Consolidating data silos
- Constrained resources and budgets
Specifically, it claims to help finservs by doing things like helping banks identify branches that are underperforming or helping lenders determine an applicant’s risk by analyzing more than a credit score. Snowflake says it also can help fintechs build customer-facing applications and analytics capabilities directly on top of its platform.
Dual role
Capital One – a bank holding company specializing in credit cards, auto loans and banking products – is one of Snowflake’s largest clients, having been responsible for 17% of Snowflake’s revenue for the fiscal year ending Jan. 31, 2019 and 11% for the fiscal year ended Jan. 31, 2020.
Two things to note: Capital One Services is an affiliate of Capital One Securities, one of the underwriters in S-1’s offering. Also, Capital One is not only a customer of Snowflake’s – it’s also an investor in the company. In June 2017, Snowflake forged a subscription and services agreement with Capital One Services (which has since been amended three times) under which Snowflake provides the company access to, and use of, its cloud data platform.
By September 2017, Snowflake had announced that Capital One was so happy with the products, that it wanted to back the company with a $5 million investment.
That financing was an extension of Snowflake’s $100 million Series D that was announced in April of that year. Earlier this year, Snowflake raised a $479 million funding round that valued the company at a staggering $12.4 billion. Since its 2012 inception, Snowflake has raised a total of $1.4 billion, according to Crunchbase, from investors such as Salesforce Ventures, Dragoneer Investment Group and Sequoia Capital, among others.
Indeed, after implementation, Snowflake’s platform spread rapidly to additional lines of business, the company noted in its S-1. For example, its platform now helps Capital One target and deliver personalized recommendations of additional products to customers. It also enables Capital One to transform and integrate data for near real-time marketing campaigns and to ingest and perform analytics on petabytes of log files going back as long as needed by various operations stakeholders.
But, looking ahead, Snowflake does expect revenue from the company to account for less than 10% of its revenue for the fiscal year ending Jan. 31, 2021, according to its S-1. Meanwhile, Snowflake’s client list continues to grow across a wide range of industries as the company clearly does not want to put all its eggs in one basket. Other clients include residential mortgage company PennyMac, Adobe, Logitech, and Office Depot, for example. And in its S-1, Snowflake said: “We must expand our sales and marketing organization to increase our sales to new and existing customers.” It elaborated with plans to continue expanding its direct sales force while investing “significant financial and other resources, including in industries and sales channels in which we have limited experience to date.”
The competition
Another question we asked ourselves was who are Snowflake’s leading competitors in servicing the financial services industry? Snowflakes shares in the S-1 that its competition includes large, well-established, public cloud providers including AWS (Amazon Web Services, which is also a client), Azure (Microsoft’s cloud platform), and GCP (Google Cloud Platform). All three players also have established clients in the financial services space via a variety of products. For example, AWS also counts Capital One as a client along with Coinbase, Stripe, Robinhood, Monzo and Allianz, among others.
In terms of understanding where Snowflake fits into this cloud, a source on background explained it to me like this. If someone wants to build a house, they’ll go to a Home Depot-type place to get all the materials needed to assemble it. (In this analogy, AWS, Azure and GCP are the Home Depot-type place).
But Snowflake offers a product that is more like a pre-fabricated home, meaning that it’s already built for the client so that they are one more step up the chain in terms of getting things ready. In other words, Snowflake offers data warehousing as a service, and sits on top of other cloud platforms as an added secure layer. Data professionals refer to this data warehousing as a service model as DWaaS. Multiple industry researchers estimate that the DWaaS market totaled $1.4 billion in 2019. Analysts project a CAGR of 20% to 30%, with the market growing to $4.3 billion by 2025 and $23.8 billion by 2030.
Despite all its growth (and funding) and lofty valuation, Snowflake joins the long list of not-yet-profitable technology companies planning to go, or have gone, public in 2020. The company reported sales climbed 174% in 2019 to $264.7 million, while also reporting a net loss that nearly doubled to $348.5 million.