3/2023 H1- SNOW❄️ Buyback, # of US Firms, Break Point🎾, Jerry MaGuire🤔
Much can be quickly destroyed by the barking dogs in your head🐶🐕🐩🐶😵💫.
Welcome back. In a busy world we can be distracted with the trivial many things or we can focus on The Vital Few.
Something that I am thinking about
Snowflake❄️ $CFO Provides a Lesson on SNOW 0.00%↑ ’s New $2B Share Buyback-
I am at best skeptical of most share buyback activities, and often as I gather more information skepticism becomes aggravation. But, share repurchases can also be value adding and when executed well, they are beautiful.
Snowflake CFO Mike Scarpelli is accomplished, formidable and he doesn’t suffer foolish questions. Below is from the most recent earnings call Q&A-
Fred Lee -- Credit Suisse -- Analyst
..You've both been very clear about managing the business for the long term. And considering this operating philosophy, what's the thinking behind the $2 billion share buyback versus pouring more gas into the company's R&D engine and doubling down on products? Thank you.
Mike Scarpelli -- Chief Financial Officer
Yeah. Fred, it's Mike. We have $5.1 billion in cash on our balance sheet. We've had $5 billion since the time we went public.
We've made a number of strategic acquisition and M&A deals. So, we feel we have more than enough capital in the business to fuel our growth through both the small tuck-in M&As, as well as invest in headcount, but you can only add so many people at a time and get them productive in an engineering organization. And I'm not hearing our engineering leaders claim they need more people. And it's not growth at all costs in this company.
Yes, we are a growth company, but it's efficient growth as well, too, and we'll continue to do that. And we expect we're going to generate close to $2 billion over the next two years. And given the $5.1 billion we have, we think it'd be great to manage dilution through that. And we still have the opportunity, if we find great candidates, to hire faster if we so choose.
I am sure your brain is thinking through it like Alan from The Hangover, and I want to unpack a bit of Mike’s answer. In 2 paragraphs Mike gave us a mini master class.
Cash on Hand- $5B on the balance sheet and growing↗️.
M&A- Acquired several tuck-in M&A deals already. Ability to do more M&A, lets say from $5M-$50M-$500M, easily.
Headcount to Fuel Growth- Headcount is growing, with special attention given to S&M and R&D (internal product development.)
🚨Confusion Alert🚨- Internal R&D (Build) and External M&A (Buy) push and pull against each other. Can an Incumbent get Innovation (R&D) before a Smaller Competitor gets Distribution (M&A)? 
Have you ever had to onboard and train 1 person? Of course, it is a lot of work. What about 10 people? What about 440 people in Q3 and then 250 more in Q4, net incremental people. That is a lot of people to get up to speed and productive.✅ And more hires are planned in the subsequent future quarters.
Time- Only so much can be done simultaneously, and SNOW 0.00%↑ will be executing, digesting and integrating all of the growth engines🏎️🏍️ noted above. But, incoming cash will be continuing to pile up during this time interval at the rate of about $1B per year. This is a luxurious 💍💎💰problem.
Conclusion- Mike Scarpelli and Frank Slootman, CEO announce a $2B share repurchase program, uncommon for a high growth company. This resembles Warren Buffett and Charlie Munger’s long time efforts to grow an organization with excess cash being sent to a central location, Berkshire Hathaway HQ, for smart capital reallocation.
If you are interested in learning more about allocating excess cash flow at the enterprise level and 5 alternative uses of cash, check out my December First Half edition.
Investing, Companies, Market Past/Future
(I invest in Companies, not in stocks.)
Interesting companies that hosted earnings results or information sessions since my last edition that I reviewed-
Technology- All of these were meaningful earnings calls and reporting- CRM 0.00%↑ , ORCL 0.00%↑ , OKTA 0.00%↑ , SNOW 0.00%↑ , MDB 0.00%↑ , AVGO 0.00%↑ (I am also a fan of Hock Tan the CEO) , SPLK 0.00%↑ , ZS 0.00%↑ , CRWD 0.00%↑
Interesting chart above from edition 3/10/23
by Jamin Ball contrasting companies with a Consumption vs Subscription revenue model over time.
Housing & Banking - LOW 0.00%↑
Others- KSS 0.00%↑ yikes😬 (Revenue, Cashflow, Forward Guide↘️)
COST 0.00%↑ (My summary of the earnings call- inflation of some consumer goods is down and the supply chain times have improved significantly.) Richard Galanti CFO- "..the estimate of just timing of getting things across the ocean was 70-plus days. Today, it's back down to 30-ish days."
Table- Number of US Firms grouped by Headcount-
When listening to firms like SNOW 0.00%↑ , CRWD 0.00%↑ , MSFT 0.00%↑ , AMZN 0.00%↑ , GOOG 0.00%↑ , NET 0.00%↑ , MDB 0.00%↑ , we often hear talk about landing large logos, growing in the Enterprise segment, and targeting SMBs (Small and Medium Business).. It got me wondering what the statistics🔢🧮 are on each of these group sizes. (See the table below.)
For example, CrowdStrike🦅 recent customer count was 23K. From the table below, there are ~115K firms with > 100 employees. CRWD 0.00%↑ has captured 20% of this group.
Another observation. There are 1,100 logos/firms with > 10K employees🤔. 1,100 is a lot of companies, but AMZN 0.00%↑ , MSFT 0.00%↑ & GOOG 0.00%↑ can certainly partner☁️🖥️ with all of them fairly quickly. Then it seems like it becomes very competitive to take market share, like a knife fight in a phone booth🔪🩸.
Enjoy! 🤓
Videos
Break Point on Netflix. Season One, 5 episodes, ~50 minutes each. Documentary that follows men's and women's pro tennis players throughout four 2022 Tournaments (Australia, California, Madrid, Paris.) Each episode focuses on 1 or 2 different competitors. It doesn’t matter if you are not a tennis fan, the show is compelling.
There are strong correlations to investing-
Individual performance,
Results, Results (boastful talk is worthless, talk to the hand🗣️🖐🏽),
Suffering, Meltdowns🤬,
You Eat 🍇🦌what you Kill🔪🍴, or you STARVE🥵😵💀!!
Short+Long Term success hinges on Mental Harmony. Much can be quickly destroyed by the barking dogs in your head🐶🐕🐩🐶😵💫.
4 Min explainer video below of Geosynchronous Orbits. The graphics and visuals on this are outstanding. Some would take 4 confusing hours to explain this concept and MinutePhysics accomplishes this in 4 minutes. Enjoy!
Books and Articles since my last edition
(I am usually reading 2 at a time, and if I get bored of a book I quit and move on.)
Refuse to be done, Matt Bell about novel writing and revision.
The Long Walk, Stephen King Fiction. I am a King fan, but it was meh. If you want to read a Stephen King book that is not horror, let me recommend The Tommyknockers. It is mostly mystery with some sci-fi, and it is 💫👌🏾.
Chasing the Light, Oliver Stone is a memoir. Stone is more than a famous director, he is an artist🎨🎭 . His energy is different and I came away regarding him as a bit tortured.
Here is a link to many of the books I have read and my 1-5 star rating- Goodreads Books Read
Wild Card🃏
Sports Agency 🏈🎾🏀⛳⚾⚽- With all my talk of athletes above, it reminded me of when I would receive envelopes📩📨 of credit card and hotel receipts from pro golfers and tennis players.
Sports Agents are the folks who are a legal representative for professional sports figures (athletes.) They procure and negotiate employment and endorsement contracts for the athlete whom they represent. The 1996 movie Jerry MaGuire starring Tom Cruise & Cuba Gooding Jr. is one of the most famous films illustrating the industry.
I had a part time job while at university in the accounting department of an agency in the Virginia/Washington DC area. Men/Women golfers, basketball, and tennis players. I went through Steffi Graf’s🎾 weekly receipts many times.
I had one of those cubicles in the photo below.
I couldn’t resist, this below video scene always makes me smile and laugh. Plus, we are talking about money in this newsletter 🤑💰. Enjoy!
If you liked this post from Nick, why not share it and subscribe?
Disclaimer: All of my posts are for informational purposes only. I might own some of the companies discussed in these posts. This is NOT a recommendation to buy or sell securities discussed. Please do your own work before investing your money.
I have to object to your comparison of Snowflake's buy-back policy with that of Buffett and Munger at Berkshire. The two are nothing alike.
Here is your clue from your article:
Mike Scarpelli -- Chief Financial Officer: "...given the $5.1 billion we have, we think it'd be great to manage dilution through that. "
The word "dilution" being the operative word.
Stock Based Comp is one of the most abused aspects of corporate finance today and Snowflake is one of the worst offenders. (Read: https://rockandturner.substack.com/p/a-free-lunch-no-such-thing).
Because of this abuse, Snowflake needs to manage dilution. So the repurchases are not for the benefit of investors, they simply mask the enormous benefit to insiders at the expense of shareholders (It is shareholder capital being allocated to offset that dilution)
Berkshire Hathaway is one of the best run businesses on the planet. They wouldn't dream of screwing their investors and never engage in stock based comp. In fact, Buffet has confirmed "We will have a significant part of our net worth in Berkshire shares, bought with our own money.”
There is a right way and a wrong way to do buy-backs. Henry Singleton was the best (read: https://rockandturner.substack.com/p/henry-singleton-learn-from-the-best).
Until the SBC issue is resolved at Snowflake, I would caution "caveat emptor!"
It is so cool that you would receive envelopes of credit card and hotel receipts from pro golfers and tennis players while you interned! Its crazy to think that nowadays, it would all be done virtually.