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Snowflake Inflates Customer Count With New Methodology
Key metric calculation changes will result in higher customer counts and increased earnings per share (EPS) in FY23.
June 7, 2022
Like we suspected Snowflake (SNOW), an enterprise SaaS firm, is using a new customer count presentation to modestly lift the key metric. Prior to filing its quarterly report with the SEC, Snowflake included new language in its earnings release related to how it counts the number of customers it has. Previously, Snowflake included boilerplate language regarding customer count being subject to:

"...adjustments for acquisitions, consolidations, spin-offs, and other market activity…”

But the latest earnings release contains new language signaling Snowflake now intends to present total customer count— and customers spending $1 million or more over previous 12-months— for historical periods reflecting these adjustments.

We assumed the new treatment would result in Snowflake revising its historical customer count upward and the assumption proved correct. In comparing the latest quarterly filing— which uses the new customer count treatment— with the prior quarterly filing, Snowflake’s total customer count increased by:

—17 customers, or 0.28% in the quarter ended January 31, 2022
—10 customers, or 0.18% in the quarter ended October 31, 2021
—3 customers, or 0.06% in the quarter ended July 31, 2021

The number of customers with trailing 12-month product revenue greater than $1 million was unchanged by the new presentation.

However, the slight increase in customer count— combined with another methodology change made in the third quarter of 2021— resulted in a modestly negative impact on historical net revenue retention rate (NRR), a key metric that helps investors gauge how much more existing customers are using the company’s platform. The new methodology resulted in NRR decreases of:

—100 bps in the quarter ended January 31, 2022
—200 bps in the quarter ended October 31, 2021
—100 bps in the quarter ended July 31, 2021

Previously, DuDil has noted Snowflake routinely changes how it calculates or presents key metrics. For instance, in the quarter ended April 30, 2022, Snowflake changed how it handles tax withholdings for employee RSUs which will result in higher earnings per share (EPS) by shrinking the denominator in the calculation:

“In future periods, this change in withholding method is expected to reduce (i) net cash provided by financing activities and (ii) our shares outstanding used to calculate net income (loss) per share.”
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