CALLSNOWabout 1 month ago5.4Kviews

Snowflake: the capex drag just stopped being a drag

The spend is finally producing more than it costs to carry. Every quarter past the crossover compounds in the opposite direction to the last two years.

Sara Cohen@sara_cohen

The mechanism is a depreciation schedule. Capacity is expensed over its useful life while the revenue it enables lands immediately, so the reported margin is worst in the build year and best two years after it, entirely independent of demand. The disclosure carries it. Management broke out the incremental contribution for the first time and it exceeded the incremental depreciation line, which is the first time that has been true since the build began. The position: long on Snowflake, entry locked at publication and the exit dated rather than open-ended. The target is stated in the call block above and the horizon with it. Sized to the catalyst rather than to conviction, with the invalidation written into the kill-switch card instead of left implicit. Multiple compression across the sector is the risk that is not company-specific and not hedged here. It would overwhelm the operating argument in either direction.

Discussion · 8

Pauline VidalAUG 9

Been long since the last one. The margin bridge is doing more work here than is acknowledged. What does the bear actually have to be right about?

Marco BianchiAUG 8

Finally someone put numbers on this. The regulatory ceiling being quantified changes the model, not just the headline. Is there a cleaner way to express this than the equity?

Yael BrennerAUG 8

Useful framing. The contract structure matters more than the headline rate. Any view on how the read-across affects the rest of the group?

Noa BergmanAUG 8

I came in sceptical. The installed base argument is stronger than the cycle argument here. What is the level where you would walk away?

Sara CohenAuthorAUG 7

Honestly, that is the weakest part of the piece. The macro has to be neutral rather than helpful. If it is actively hostile this does not work and nothing in the position hedges that.

Sam WhitfieldAUG 7

This is the clearest write-up I have seen on the name. The elasticity decay across the price actions is the tell. How much of this do you think is already in the buy side's numbers?

Pauline VidalAUG 7

Respectfully, I think this overstates it. The contract structure matters more than the headline rate. What is the level where you would walk away?

Omri ShakedAUG 7

I hold the other side of this. The point about conversion rather than demand is the right one. What is the base rate on this kind of setup working?