For the first time since the company's initial public offering in September 2020, Snowflake Inc. shares offer an attractive valuation, according to Barclays.
A recent selloff pushed Snowflake shares SNOW, down about 24% from their November record high, giving investors a chance to buy into a unique asset in the software space, according to Barclays analyst Raimo Lenschow. He increased Snowflake's shares to overweight from equal weight, though he also reduced his price target to $367 from $393.
Snowflake shares were up nearly 3% in Wednesday trading.
Lenschow is upbeat about Snowflake's opportunity to drive momentum for its platform by capitalizing on data sharing in a governance-compliant way.
The more data providers use Snowflake, either internally or to publish data sets on the data marketplace, the more value it drives for data consumers that want to use the data, he wrote.
Snowflake stated that data-sharing initiatives will increase the stickiness, because they already have a sticky platform. There is no associated storage costs for data consumers because of the fact that data is copied but not transferred. Snowflake comes with a strong margin profile as it drives additional compute, which is the higher-margin part of the business for Snowflake, he wrote.
The momentum continues to build in data sharing, but it is still very early innings, representing a very large opportunity, according to Lenschow.
Lenschow said that he has always liked Snowflake for its best-in-class retention rates, but he felt the stock's valuation had been full since its IPO. Now, with the valuation near all-time lows, he is cheering for an attractive entry point for long-term investors. Snowflake's stock has lost more than 1% over the past three months, while the S&P 500 index SPX has climbed close to 9%.
Lenschow said that he has no doubt that 2022 will be another strong year of revenue performance for the category, but he said investors need to be selective when looking at software names.
We prefer to stay with cash-flow protected names, including Salesforce.com Inc. CRM. Lenschow is willing to accept higher valuations for a few selective vendors like SNOW or DDOG DDOG, where we have a high conviction of the growth story.