Category: Investing

Snowflake (SNOW) is valued at $62 billion and had 2020 revenue of $265 million with losses of $348 million (i.e., they lost more than 100 percent of revenue!). The company was at one time worth more than IBM (now at $120 billion).

How can a startup data warehousing company be worth a substantial fraction of Oracle’s $200 billion market cap? Oracle’s 2020 revenue (admittedly flat compared to 2019) was $39 billion with $10 billion in profit. Data warehousing is a small fraction of Oracle’s business; the company competes with SAP in the ERP market and sells its core RDBMS for transaction processing. Data warehousing is sometimes useful, but if a company’s Oracle systems were shut down the company wouldn’t be able to take orders, manufacture widgets, pay employees, pay vendors, etc. The actual operation of a business (which is what Oracle supports) has to be worth way more than sifting through data to learn that customers buy more alcohol after they’ve been locked down by state governors (what you can learn in a data warehouse).

Snowflake says that they’re doing something exciting layered on top of Amazon Web Services, but what if a lot of their customers are motivated by the fact that Snowflake is selling services to them at a loss? If Snowflake buys storage and computer from Amazon, then marks it down by 30 percent, plainly it is better to buy from Snowflake until and unless the party with investors’ money ends.

This guy liked Snowflake in 2018, but notes that it competes with a native Amazon offering: Redshift. The Gartner folks picked traditional data warehousing leader Teradata as superior to Snowflake in four out of four use cases. This mid-2020 comparison shows that AWS Redshift has substantially more customers, but Snowflake is growing rapidly:

The author does not come out strongly in favor of Brand A, G, or S:

Ultimately, in the world of cloud-based data warehouses, Redshift, BigQuery and Snowflake are similar in that they provide the scale and cost savings of a cloud solution. The main difference you will likely want to consider is the way that the services are billed, especially in terms of how this billing style will work out with your style of workflow. If you have very large data, but a spiky workload (i.e. you’re running lots of queries occasionally, with high idle time), BigQuery will probably be cheaper and easier for you. If you have a steadier, more continuous usage pattern when it comes to queries and the data you’re working with, it may be more cost-effective to go with Snowflake, since you’ll be able to cram more queries into the hours you’re paying for. Or if you have system engineers to tune the infrastructure according to your needs Redshift might just give you the flexibility to do so.

If “the main difference … is the way that the services are billed,” how can Snowflake be worth $60+ billion? Amazon and/or Google could simply change the way that they bill their services.

Readers: What am I missing? I hate to think that markets are wrong, but I can’t figure out how SNOW is worth $60 billion. In our current bubble, the average P/E ratio for the S&P 500 is 40 (15 is normal and Oracle is only at 17 right now). So SNOW would need $1.5 billion in annual profit to justify its current market cap. If the company settles in at Oracle’s fabulous 25 percent profitability, that would correspond to $6 billion in required revenue. Teradata (TDC), after 42 years in this business, has annual revenues of $1.83 billion, with profits of only $129 million. TDC’s market cap is $4.2 billion. If SNOW has not come up with new and better algorithms for analyzing data, how can they be worth more than the database warehousing businesses of IBM, Oracle, Teradata, Microsoft, Amazon, and Google combined?

Happy April Fools’ Day again and remember that nobody is more foolish than an investor in a bull market! (Also remember that nearly all of my investment instincts, including refraining from buying Bitcoin, have proved to be wrong!)

Related:

• my own simple explanation of classical dimensional data warehousing in a SQL database (see also The Data Warehouse Toolkit if you want to catch up on this industry)

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Clubhouse users seem to care primarily about three things:

1. Bitcoin
2. Venture capital
3. Self-improvement

I don’t own any Bitcoin. I am completely unimproved (some might say “a throwback”!). That leaves Topic #2: venture capital. I will interview Alexander Lloyd this evening at 10 pm Eastern on the subject of early-stage investing.

If you have an iPhone or iPad, but aren’t a Clubhouse member, text me from your Apple device at +1 617-864-6832 with your full name. I’ll add you to my contacts list and then invite you (one can invite only those who are in one’s contact list and it all seems to be based on phone number).

https://www.joinclubhouse.com/event/PQbKzGq8

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This has been a tough month for fans of the Efficient Market Hypothesis. GameStop (GME) started out the month at less than $20/share and is now “worth” over $300/share. The market cap for this bricks-and-mortar retailer is over $22 billion:

Why doesn’t it come back down now? Mall-based retail isn’t a lot better than it was a month ago. The Wall Street shorts who got squeezed have presumably had to close out their positions by now. Unless the company can use its current high share price to issue more shares and invest them in some super profitable business, don’t the shares have to come back down to $20?

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Suggested by a friend who ran one of the most successful investment funds in the U.S. for 20+ years…. “The Bit Short: Inside Crypto’s Doomsday Machine”:

The upshot [from looking at some money flows]: over two-thirds of all Bitcoin — $10 billion worth of it — that was bought in the previous 24 hours, was being purchased with Tethers.

This is unusual: if demand for Tethers were real, one would expect Tether Ltd. to combine together multiple USD deposits from investors into a single issuing block. Combinations like that shouldn’t add up to perfectly round numbers every time. What’s more, the supposed USD inputs (e.g., 401,431,056 USD in the top left transaction) are giving perfectly round Tether outputs (e.g., 400,000,000 USDT in the same transaction) in every block — regardless of the prevailing exchange rate or anything else.

The last nail in the coffin was when I found out about the lack of visible reserves. If Tether Ltd. really was taking in 1 USD for each Tether it issued, then it should have as many dollars in its bank account as there are issued Tethers. And it turns out we can check if that’s true! Tether Ltd.’s bank is Deltec bank in the Bahamas, and the Bahamas discloses how much foreign currency its domestic banks hold each month.

From January 2020 to September 2020, the amount of all foreign currencies held by all the domestic banks in the Bahamas increases by only $600 million — going from $4.7B to $5.3B. (The table is in Bahamian dollars, but the Bahamian dollar is pegged to the US dollar, so 1 BSD = 1 USD.)
But during the same period, total issued Tethers increased by almost $5.4 billion — going from $4.6B to $10B!
The implication was shocking: there weren’t nearly enough dollars in all the domestic banks in the Bahamas to back the Tethers that were floating around in the crypto market.

So this was crypto’s big short: Tether Ltd. was short of US dollars — to the tune of about $25 billion.

If you’ve been waiting for the right time to move to Puerto Rico (for the 4% tax rate) and sell those $millions in Bitcoin you’ve been keeping on a Post-It note, maybe this is the time!

(Disclaimer: I haven’t done my own research into the crypto market. I’m sure that if I were a Bitcoin billionaire I would have lost the password!)

Since the article mentions the Bahamas and it is almost MLK Day… statue of Dr. Martin Luther King, Jr. in Bimini (he was there in 1960 to write his acceptance speech for the Nobel Peace Prize):

(Photo from a January 2020 Cirrus SR20 trip, when it was legal to return to the U.S. without a COVID-19 test.)

Related:

• our Bitcoin v. Medical School calculator (Dr. Jill Biden, MD can feel better about the tuition he/she/ze/they paid!)

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A signature campaign promise of the Biden-Harris campaign is to raise the U.S. federal corporate tax rate to 28 percent or 31 percent on corporations that “offshore manufacturing and service jobs to foreign nations in order to sell goods or provide services back to the American market.” (Tax Foundation) When we add in state corporate tax rates, the typical U.S. company might be hit with roughly 36 percent in taxes. Compare this to 12.5 percent in Ireland or 19 percent for a London-based company.

The Trump tax law changes of late 2017 took a lot of the wind out of the Irish inversion sails. If high corporate tax rates are restored by President Harris, though, it will again make the best economic sense for corporations to be headquartered in Ireland, the UK, or other comparatively low-tax location. Ireland has the lowest rate in the EU and everyone there speaks English (sort of). Can investors profit from a Biden-Harris election win, therefore, by buying Irish assets? Since U.S. law discourages sham inversions, the actual senior management jobs should migrate to Ireland. This should help Irish real estate, banks, insurance, etc. Under a Biden-Harris administration, an enterprise with management in Ireland and an operating subsidiary in the U.S. should have higher net profits than one in which everything is in the U.S.

Separately, how is Ireland doing with coronaplague? After more than seven months of shutdown, they’ve now entered “Level 5” double secret shutdown. Note that essentially everything is closed except for schools. Primary schools are unmasked. Once students enter secondary school they must don the hijab of the Church of Shutdown. Universities are open. Adult education is open, which includes flight schools (yay!). I was discussing this on WhatsApp with an Irish friend and I said “This is the mirror image of Massachusetts. Here almost everything is open except for the schools. And when we had almost everything closed, it was the marijuana and liquor stores that were deemed essential and kept open. Maybe this is all that we need to know to understand the difference between Irish and Massachusetts values.”

The WHO dashboard shows that Ireland, in its island redoubt, has suffered a little more than half the COVID-19 death rate compared to the U.S. or the U.K.

Ireland was already ahead of the U.S. in PISA scores (2018 snapshot). With the U.S. in the midst of what might be a multi-year education shutdown while Irish schools and universities are operating more or less normally (see Trinity College Dublin’s plan), is that another good reason to shift investment to Ireland?

What the Irish might call a sunny day, May 2019, on the Giant’s Causeway (taxed by the U.K., which is a great thing if you’re an entrepreneur!)

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