Warren Buffett is notorious for guiding his massive conglomerate, Berkshire Hathaway (BRK.A) (BRK.B), by the core tenets of value investing. Under his leadership, the business has a long history of buying excellent companies at a fair price, but things have not always been this way. Originally, Buffett’s ideology was more along the cigar-butt style of investing proposed by Benjamin Graham. This involved buying fair or even poor companies at a wonderful price and taking one last ‘puff’ from them before they died. As his conglomerate grew and the influence of partner Charlie Munger rubbed off on him, his strategy shifted to what made Berkshire the behemoth it is today. Now, it looks like times are changing again.

In the new era, there are few excellent companies that can be bought at a fair price that are large enough to move the needle for the Oracle of Omaha. With the continued shift of our society toward technological innovation and the influence of younger managers like Ted Weschler and Todd Combs, Berkshire’s approach has been changing. The latest example now is Berkshire’s decision to invest hundreds of millions of dollars into the IPO of Snowflake (SNOW). Weschler and Combs have been largely responsible for smaller investments around this size, but Buffett has not been absent from decisions on the tech side. Probably the greatest example of Buffett’s commitment to this change was his willingness to allow Berkshire’s stake in Apple (AAPL) to grow to more than $100 billion (including appreciation of the stock in the business) as of August of this year. Because of the size of the deal, it’s unclear who all is responsible for the decision to participate in Snowflake’s IPO, but it could be a sign that investors should consider following suit if they can buy in at a price similar to what Berkshire is receiving in the transaction.

A look at the move

Though Buffett has not always stayed away from IPOs, investing in them has been a rarity. His view has been that they are generally overpriced. In this case, however, Berkshire has decided to throw caution to the wind. According to the terms of the agreement between Snowflake and Berkshire, the latter will acquire $250 million worth of Class A common units in the IPO. They are joined by a Salesforce (CRM) subsidiary, which is making a transaction of identical size. This will be new money injected into Snowflake, and unlike the rest of the company’s IPO, it will not carry underwriting fees and discounts. If Snowflake goes public at $80 per unit, which is the mid-point of its expected range, this would translate to Berkshire receiving 3.125 million common shares in the business. In addition, Berkshire has agreed to buy 4.042 million Class A common units from existing shareholders in the business at the IPO price. Collectively, this could result in a price to Berkshire of $573.36 million with the $250 million commitment factored in and assuming the $80 per share estimate.

This maneuver by Berkshire is part of a larger offering by Snowflake. The company is issuing 28 million Class A common units, plus they are making another 4.20 million available for their underwriters. In all, if the IPO price is $80 per share, the company would receive net proceeds of between $2.7 billion and $3 billion. That’s inclusive of the combined $500 million that Berkshire and Salesforce are allocating toward it. With everything said and done, and without factoring other possible share issuances that could be made for employee compensation and other things, Snowflake should end up with 278.78 million common units available, valuing the firm at around $22.30 billion. All incoming investors are receiving Class A common shares, while insiders are receiving Class B ones. Economically speaking, these units are identical. However, the Class A units carry just one vote apiece, while the Class B units carry 10. This gives the insiders of the business an overwhelming majority of the vote over the business’ affairs.

An interesting prospect to consider

Until the dust settles, it’s impossible to know where the market will value Snowflake. Having said that, investors should consider picking up some units in the business. Fundamentally, this may seem odd, since the business historically has only lost money and is certainly overvalued with such a large market cap as what is projected. Having said that, its business model is sound and its growth is phenomenal. On the business side, it may be worth mentioning what exactly the firm does.

According to management, Snowflake, at its core, is the provider of what it calls its Cloud Data Platform. This platform hosts the Data Cloud, which is an ecosystem that allows customers to break down data, analyze it through innovative data sets, and derive value from the results of their analysis. One example video shows a bike-sharing firm looking at user behavior data and comparing it with independent weather data to determine the cause of slow times of the year. This is a gross understatement of all that the business does, but the best way to view the firm is through the lens of its layers. The first of these is a storage layer that collects and unifies structured and semi-structured data. The second layer is where users compute that data using common data sets. The third includes the firm’s cloud services, which help to optimize a user’s use cases.

Recently, customers have come to realize the potential that Snowflake has toward optimizing their data. Consider, for instance, the firm’s financial performance. In the first two quarters of its most recent fiscal year, revenue has come out to $241.96 million. This is more than double the $104.04 million seen the same time last year. In the fiscal year ending in January of 2019, sales were just $96.67 million. They have surged in the latest completed fiscal year to $264.75 million. As you can see in the image above, Snowflake’s profitability has been a concern, but in the first two quarters of the current fiscal year, it saw operating cash outflows total just $45.27 million. This compares favorably to the $110.02 million seen a year earlier.

What has caused Snowflake’s growth is something really simple: a surging customer count. At the end of its latest fiscal year, the firm had 2,392 clients. This is up from 948 a year earlier. Total customer count today is closer to 3,117, up from 1,547 a year ago. In the month of July this year, the larger user base has a significant impact on Snowflake’s activity. The firm reported 507 million daily queries during the month. This is nearly double the 254 million seen in July of 2019. Such rapid growth combined with how quickly the company is approaching operating cash flow breakeven is encouraging.

Takeaway

Right now, Snowflake represents an interesting prospect. What’s more, it’s a firm that has the rare distinction of being both tech-oriented and that was vetted by Berkshire. As the world becomes more digital in nature, data will hold ever-greater importance in our lives and Berkshire and Salesforce probably both see this as a play on the growth of data in the global economy. Are shares pricey for where the company is fundamentally? Without a doubt. But is it likely to experience tremendous upside growth in the years to come? I would say yes.

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DataRobot and Snowflake have designed a new integration to help customers harness AI and accelerate their data-to-value times.

The new integration simplifies data movement between DataRobot’s enterprise AI platform and Snowflake’s enterprise data platform.

The DataRobot enterprise AI platform provides automation across the entire AI lifecycle, including the organisation, build, deployment, running and management of AI assets. 

Snowflake’s enterprise data platform is built for the cloud that allows all users to gain limitless insight from their data at a fraction of the cost of legacy solutions. 

With the new integration, users can now read data in Snowflake, create predictions in DataRobot, and send those decisions back to Snowflake seamlessly, removing the need for scripts and technical development.

New Zealand-based personal lending marketplace Harmoney is one joint customer that leverages DataRobot and Snowflake for its data science.

Harmoney uses DataRobot and Snowflake technologies to gather, understand, and use critical data that informs the entire customer journey to make sure the experience is as delightful as possible.

Harmoney data and analytics manager Miles Davis explains further: “With Snowflake, we can get all of our data into one warehouse, and with DataRobot, we can make sense of all of the data we are giving it to derive deep predictions.”

“The new integration takes these best-in-class technologies a step further, creating a seamless way to maximize the value of our models. We’re already reaping the benefits of the integration between these platforms and can’t imagine life without them.”

DataRobot VP of alliances Michael Setticasi says that Harmoney and other customers have asked for a full circle integration so they can gain insight and act on data to drive business incomes.

The integration builds on DataRobot and Snowflake’s previous partnership, which was designed to allow users to bring in data from Snowflake into DataRobot. This new integration delivers even more value by sending predictions from DataRobot back into Snowflake directly, removing the need for scripts, technical development, or other steps to get results back to the data warehouse.

DataRobot recently appointed new president and chief operating officer Dan Wright. Wright from AppDynamics, where he was also chief operating officer.

DataRobot founder and CEO Jeremy Achin says that Wright’s passion for excellence is perfectly aligned with what DataRobot aspires to be. 

In 2019 DataRobot acquired three companies (Cursor, ParallelM and Paxata), grew to more than 1200 employees, and partnered with customers in more than 35 countries.

Wright adds, “With its combination of a large and rapidly-growing market, cutting-edge technology, a visionary founder with a passionate team, and support from top investors, DataRobot is uniquely positioned to lead the AI revolution.”

“Jeremy and the rest of the team are laser-focused on maximising their positive impact on customers, employees, communities, and the world. I am honoured to join them on that mission and excited to build on the tremendous foundation they have put in place to create an iconic company.” 

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Snowflake Computing will provide its cloud-native data warehouse services on Google Cloud Platform starting later this year, putting it in a position to better support customers’ multi-cloud strategies.

The move completes a trifecta for Snowflake, which has run its expanding portfolio of data management and data warehouse services on Amazon Web Services since 2015 and began support on Microsoft’s Azure cloud platform in July 2018.

Snowflake, generally seen as one of the fastest growing IT startups in recent years, also announced this week that its data warehouse services are now available on the Microsoft Azure Government for use by U.S. government agency customers.

Snowflake, based in San Mateo, Calif., made the announcements at its Snowflake Summit customer conference in San Francisco this week.

“As more organizations adopt a multi-cloud strategy, it’s become important for businesses to have a unified data source,” said Frank Slootman, recently named Snowflake’s CEO, in a statement. “We’re excited to work with Google Cloud to provide the flexibility, performance and unlimited concurrency that customers require to power their businesses ahead of the competition.”

Snowflake’s announcement is significant for Google Cloud and its efforts to catch AWS and Microsoft Azure in cloud platform market share. Google Cloud has taken a more aggressive competitive stance since former Oracle executive Thomas Kurian took over as Google Cloud CEO in January.

“Enterprises are undergoing digital transformations, and increasingly their data is informing these shifts,” Kurian said in a statement. “Enterprises will soon be able to use Snowflake alongside Google Cloud’s comprehensive set of advanced analytics and machine learning solutions.”

Snowflake said its data warehousing system will be available on Google Cloud in preview mode this fall with general availability scheduled for early 2020.

The relationship with Google Cloud will be one of “co-opetition” in that while Snowflake’s data warehouse services will run on the Google Cloud Platform, it competes with Google’s own BigQuery cloud data warehouse services. Snowflake similarly competes with the AWS Redshift cloud data warehouse system, despite Snowflake running its services on the AWS cloud platform.

Snowflake said that McKesson Corp., a major pharmaceutical and medical supply distributor and provider of healthcare technology solutions, plans to use Snowflake’s services on Google Cloud to develop new applications and products, machine learning and artificial intelligence technologies, and enhanced analytics.

Snowflake also announced that its data warehouse services are now available on Microsoft Azure Government, a mission-critical cloud platform that provides cloud security, governance and compliance capabilities required by U.S. government agencies and the vendors they work with.

“With Snowflake on Azure Government, government agencies get the performance, scalability and simplicity of the most powerful cloud-built data warehouse while simultaneously meeting strict government security and compliance requirements,” said Ro Dhanda, Snowflake’s regional vice president of the U.S. Federal Business, in a statement.

This week’s conference and related announcements come just a month after Bob Muglia suddenly stepped down as Snowflake Computing’s CEO and was immediately replaced by former ServiceNow CEO Slootman.

Snowflake also announced the Snowflake Data Exchange, an online marketplace where customers can connect with data from other providers via a data catalog and join that data with their own data sets within the Snowflake system. The Data Exchange is currently in private preview and will be more widely available in public preview later this year.

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