Snowflake & Adyen

Authored By Louis Stevens

L.A. Stevens' areas of focus, or coverage universe so to speak, are a cross-section of FinTech, AI & data infrastructure, consumer discretionary, and software, and this cross-sectional orientation yields interesting insights.

For instance, Monday.com, who sells software on its website and within its applications, is a customer of Adyen, and this sheds light on the nature of Adyen: It facilitates digital payments.

With this cross-sectional viewpoint in mind, it recently occurred to me that both Adyen and Snowflake have vertically integrated their respective target markets, with Adyen vertically integrating the various point solutions on the acquiring side of the payments ecosystem and Snowflake vertically integrating the various point solutions within the data management stack built atop the public clouds.

I will share charts depicting these realities with you later on, but I'd like to touch on some other similarities between the two before I do so.

I really find thinking about both businesses in conjunction to be fascinating in that they were both so very adored in 2020 through 2023, especially by big money.

For instance, Snowflake was touted as being owned by Warren Buffett and was purchased by some of the largest funds on earth throughout 2020 to 2023. Similarly, Adyen has been doted on by the likes of Fundsmith ($35B of AUM) and its operators, who have performed exceptionally well through relatively conservative investing.

Both Snowflake and Adyen have experienced almost unbelievable revenue, gross profits, and free cash flow scaling events over the last 10-15 years, during which their gross profits went from ~$0 to ~$2B.

Phenomenal, otherworldly feats of growth to be sure!

Both businesses generate robust free cash flow, with each currently reporting about 40% free cash flow margins. Both grow at well over 20%, with Adyen growing 23% and Snowflake growing 33%, even at their enormous scales atop years of torrid, sustained growth.

Both businesses hold massive cash hoards of $4.75B (Snowflake) and $2.3B (Adyen) alongside no long term debt. Pristine balance sheets!

These are really the best of the best of the best businesses.

But the similarities do not stop there in that:

Snowflake (a public co.) is to Databricks (a private co.) as Adyen (a public co.) is to Stripe (a private co.).

In both cases, our two darlings have private market competitors who are approximately their Lowe's or Coke. That is, Snowflake and Adyen both have private market competitors who essentially operate in duopolies with their public market counterparts, i.e., Snowflake and Ayden.

For Coke, Lowe's, Snowflake, and Adyen, they all operate in massive TAMs with effectively only one each competitor for each company, i.e., they all operate in de facto duopolies, allowing them to capture market share rapidly in giant TAMs.

And still the similarities do not stop:

Both Snowflake and Adyen have experienced enormous share price declines over the last three years, during which their earnings have soared in direct opposition to the progress of their businesses!

In this vein, both companies have evolved their businesses materially such that they are the most robust, diversified, and most multi-product they've ever been! 

Adyen's Net Income Soars As Its Share Price Collapses

Snowflake's Free Cash Flow Per Share Soars While Its Share Price Collapses

In becoming multi-product platforms, Snowflake and Adyen vertically integrated such that they built differentiated platforms that have rapidly captured market share in their respective industries.

Let's review the vertical integration of both, which, again, is a very notable similarity between the two businesses.

Adyen's Vertical Integration Of The Acquiring Ecosystem

This vertical integration has led to incredible growth and progressively larger market share within the acquiring TAM:

Adyen's Market Share In The Acquiring Industry

Adyen's Gross Profit Growth Which Mirrors The Above Market Share Capture

Adyen's Gross Profit Growth Which Mirrors The Above Market Share Capture

Turning to Snowflake, it as well has vertically integrated large swaths of the data management value chain.

The Data Management Value Chain Illustrated (Substitute Snowflake For Databricks In The Below Chart For The Purposes Of This Exercise)

And here is a visual representation of Snowflake's vertical integration of this industry.

Snowflake's Vertical Integration Of The Data Management Industry (Value Chain)

Snowflake's Gross Profit Growth Which Reflects Its Market Share Capture Via Its Vertically Integrated Platform

Of note, the vertical integrations we just reviewed represent LAS' first foundational investment framework, which you may read about here.

And the above growth illustrates why this would be LAS' 1st foundational investment framework: It can create massive growth and market share capture!

To close, hopefully, this comparison gave you a better understanding of why Snowflake and Adyen are attractive businesses.

Disclosures:

L.A. Stevens has rated ADYEY a "buy."

L.A. Stevens has not rated Snowflake.