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Net dollar retention is a dangerous indicator.
Snowflake $SNOW showed in their S-1 filing an amazing 158% retention. The highest ever for an IPO.
BUT - we have to understand what it means and the potential pitfalls.
small THREAD
Snowflake $SNOW showed in their S-1 filing an amazing 158% retention. The highest ever for an IPO.
BUT - we have to understand what it means and the potential pitfalls.
small THREAD
Net dollar retention measures growth from existing customers.
Compared to say a year ago, how much revenue you make from the existing customers.
If it is less than 100% - You lost customers or most downgraded.
If it is more than 100% - You retained customers or most upgraded.
Compared to say a year ago, how much revenue you make from the existing customers.
If it is less than 100% - You lost customers or most downgraded.
If it is more than 100% - You retained customers or most upgraded.
So looking at net dollar retention should theoretically tell you how good a company is with its customers and how many leave or don't upgrade, right?
Well, not necessarily.
The explanation for $SNOW might be different.
And it's important to acknowledge it.
Well, not necessarily.
The explanation for $SNOW might be different.
And it's important to acknowledge it.
Snowflake provides data warehousing services.
As an insider in the industry - I can tell you they are cool.
Maybe even too cool.
Their customers prior to the IPO were mostly high growth startups, not big companies (those use Oracle, Big Query, Redshift, etc.)
As an insider in the industry - I can tell you they are cool.
Maybe even too cool.
Their customers prior to the IPO were mostly high growth startups, not big companies (those use Oracle, Big Query, Redshift, etc.)
So given the typical customer and the product - it explains the high retention.
The customers are biased toward high growth, so they obviously grow within Snowflake.
The customers are biased toward high growth, so they obviously grow within Snowflake.
The product requires a very hard migration of data. So a high-growth startup is less likely to bail after becoming a customer.
Some executives would have to be fired if a company discover they did all the work to migrate their data just to leave so quickly.
Some executives would have to be fired if a company discover they did all the work to migrate their data just to leave so quickly.
These two forces push the net retention very high.
If most companies that would have joined Snowflake, in the beginning, would have been stable companies, it would have pushed the retention down.
If most companies that would have joined Snowflake, in the beginning, would have been stable companies, it would have pushed the retention down.
Behind every number, there's a story.
Uncover the story - don't get excited for numbers without knowing the caveats.
Uncover the story - don't get excited for numbers without knowing the caveats.
@patrick_oshag you like SAAS, what do you think of that?
@10kdiver @InvestmentTalkk would love your input too
@10kdiver @InvestmentTalkk would love your input too
