Snowflake Inc – Lossmaking entity amid macroeconomic uncertainties.

Snowflake Inc (NYSE: SNOW) is a Data Cloud Platform provider, which serves nearly 30% of the Fortune 500 customers with its data, insights, and analytics.

Investment Rationale – Avoid at USD 230.30

• From a technical standpoint, 200-day SMA (251.53) seems unfavourable and indicating a downward trend in the stock.
• The Company looks overvalued, considering its weak fundamentals.
• Snowflake may not be able to achieve profitability since it has a history of net losses.
• Over the past six months, the stock price of SNOW has fallen nearly 4.04%, while the benchmark index, NYSE has risen around 22.58%, reflecting a significant underperformance.

Risk Assessments

• The Company also faces intense competition within the technology space, which can restrict its profitability generation even in the future.
• The business will suffer if the Company fails to develop new products, invest in new business lines, and successfully grow the user base.
• Snowflake is an extremely young entity with limited operating history, which makes it unreliable amid a lossmaking business state.

Recent News

14 January 2021: Snowflake announced that total number of data providers exceeded over 300% since April 2020 on Snowflake Data Marketplace, which would help the Company in drawing new insights.

Financial Highlights for the period ended 31 January 2021 (as on 3 March 2021)

 (Source: Company Website)

• During Q4 FY21, product revenue jumped 116% year-on-year to US$178.3 million.
• The remaining performance obligation also witnessed a hike of 213% year-on-year in Q4 FY21.
• At the end of the FY21, the Company had 4,139 total customers.
• As of 31 January 2021, the net revenue retention rate stood at 168%, while there were 77 customers with trailing twelve-month product revenue over $1 million.

Share Price Chart    

 (Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: EV/Sales Approach (NTM) (Illustrative) 

Conclusion

Snowflake reported triple-digit product revenue growth in FY21; however, the Company still ended the FY21 in worsened net losses. In terms of guidance, Snowflake expects to end FY22 within the revenue range of US$1,000 - US$1,020 million and an operating margin of 19%. Therefore, it is prudent to take a fresh position in the stock when the Company does not forecast to report profitability in the short-term. Moreover, macroeconomic uncertainties could further aggravate the situation. Stock 52 week High and Low were USD 429.00 and USD 208.55, respectively.

Based on the weak fundamentals, loss estimations, and valuation conducted above, we have given an “Avoid” stance on Snowflake Inc at the closing price of USD 230.30 (as on 17 March 2021), while we look forward to reviewing the Company when it is able to improve the profitability margins.

GTT Communications Inc – Delayed reporting creating doubts regarding the business functioning.

Founded in 2006, GTT Communications Inc (NYSE: GTT) is a global communications network provider that serves multinational enterprises, governments, and carriers across five continents.

Investment Rationale – Avoid at USD 2.10

• From a technical standpoint, 200-day SMA (4.99) is not supporting an upside potential.
• The Company was unable to file the quarterly reports for Q2 and Q3 of FY20 since it identified certain errors in the FY19 filing, which required some amendments. Therefore, the available financial report is quite older to relay upon.
• The economic downturn can impact financial conditions and operating results.
• Over the past six months, the stock price of GTT has fallen nearly 66.45%, while the benchmark index, NYSE has risen around 22.58%, reflecting a significant underperformance.

Risk Assessments

• The unfavourable changes in foreign currencies and economic downturn can significantly impact profitability.
• GTT is also exposed to interest rate risk and regulatory changes.
• The Covid-19 pandemic can result in the delay of contracts, and thus, it can impact the cash flows.

Recent News

16 March 2021: GTT announced Tom Homer as division president for Europe and Dave Salustri as Division President for Americas division.

Q1 FY20 Report for the quarter ended 31 March 2020 (as on 8 May 2020)

 (Source: Company Website)

• Revenue for Q1 FY20 decreased by 5.7% year-on-year.
• The net loss stood at US$83.3 million, which significantly worsened from the Q1 FY19 level.
• The free cash flow in Q1 FY20 slightly improved from Q1 FY19 and stood at the US $22.0 million, representing 5.2% of revenue.
• The Covid-19 pandemic significantly impacted the churn rates and installations.

One Year Share Price Chart    

 (Source: Refinitiv, chart created by Kalkine Group)

Conclusion

GTT reported a net loss in Q1 FY20, and it operates in a rapidly changing environment which can further aggravate these losses, such as potential cyber-attacks, contract delays, and dependency over data vendors. Even the economic downturn has created a challenging environment to raise additional funds. Moreover, the lack of information regarding the current financial performance and guidance is keeping the outlook gloomy. Therefore, it is rational to avoid investment in the current position. Stock 52 week High and Low were USD 12.59 and USD 1.51, respectively.

Based on the limited operating history, absence of revenue, and uncertain market conditions, we have given an “Avoid” stance on GTT Communications Inc at the closing price of USD 2.10 (as on 17 March 2021), while we look to reviewing the upcoming financial and operational updates.   

*All forecasted figures and Peer/Industry Information have been taken from Refinitiv, Thomson Reuters.

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