Some of you already knew about Snowflake Inc but if you are not following the tech world in US then you might be hearing this first time.Snowflake, the cloud-based data management company that's 2020's biggest IPO, jumped 112% in its début. But, you will surprise to know the valuation.
Snowflake Inc is a loss-making company, it has $402 million revenue in TTM but currently trading at 68.629B ( at a price of 248) which is around 169 times to sales when the company is still making losses.
It may be still normal for us by knowing the history of FaceBook and Amazon. But, you will now surprise to know the following facts.
- Warren Buffets (Berkshire Hathaway) never believe to invest in IPOs but the first time they saw something in this cloud-based data management company and invested in IPO.
- Warren Buffet is always known for investing in stocks with cheap, reasonable valuations with MoS and good cashflow but the first time Berkshire Hathaway invested in a tech company at valuation of more than 70 times sales when the company is still making losses. This has surprised a lot of value investors but they have seen a future in cloud-based data Management Company Snowflake .
- Even Salesforce invested pre and during Snowflake IPO at this high valuation.
Now the question arises does Indian stock exchanges have any cloud-based data Management Company? The answer is yes. TechNVision has US (Santa Clara , California) based subsidiary “Solix Technologies".
Snowflake Inc and Solix Technologies may not be directly comparable on size but both provide solutions for cloud-based data management, Artificial Intelligence (AI), Enterprise Data Lake, Advanced analytics of cloud data, big data solution, Big Data fabric, Solution for Data Silo, Role-based data access, Cloud data presented in impressive Dashboard for analysis and decision making, Govern the cloud access and ensure data security with updated regulations like GDPR, Both Snowflake and Solix supports not only structure but also non-structure data.
However, there are more differences between Snowflake Inc vs Solix Technologies apart from just size
- Solix Technologies is more on the archiving side of the lifecycle while Snowflake is more on recent or live prod data. However , Solix common data platform can handle both
- Snowflake is growing its sales by more than 150% and expected to grow at least 100% for the next few years while TechNVision is growing its sales just around 20-30%
- Snowflake is having a big pocket and after a recent IPO it has a much more bigger pocket. It can spend a huge sum on marketing and product improvement. On another hand TechNVision is not having much money it was somehow putting small cash generated back into business for growth and it has a very stretch working capital cycle. TechNVision current focus is on as much as possible customers acquisition, on the cost of stretch working capital. First half it has generated cash flow from the operation of around 5.5 crores but not sure if low Q2 sales growth is because of it. If a company has a big pocket then it can work on sales growth regardless of profit worry else it is very difficult.
- Focus area of Solix and Snowflake is different . Snowflake is challenging traditional database player and causing disruption to them by building extremely powerful cloud-based SQL database built on a cloud back-end with both a slick web interface and command line tools. Still transaction based applications are using old database but companies are using Snowflake for Warehouse which is used for business intelligence . Snowflake is also challenging Hadoop. Solix also provides web interface , Form & Report , API , Stored Query to retirive data from the cloud.While , main focus area of Solix is archiving or Decommissioning legacy application on the cloud .Experts believe as many as 40 percent of applications in a non-optimized portfolio are eligible for retirement, rationalization or migration. These outdated applications consume computing resources, storage, and manpower, yet provide little business benefit.
Some of the screen shots for Solix Cloud features.
Some of the other products from the house of TechNVision are
- SOLIXCloud ECS (https://ecs.solix.com/)
They were competing giant like IBM and Informatica for archiving now they will compete with the following for cloud storage Microsoft OneDrive Amazon S3 Dropbox Google Drive Box Sharefile (by Citrix) I would have prefer something where they are not competing with giants.Pricing wise it is offering lowest rate with unlimited users for big customers 0.24 Per GB/Month which is equivalent to Amazon other are offering based on number of users.Global cloud storage market size was valued at USD 46.12 Billion in 2019 and is projected to reach USD 222.25 Billion by 2027, growing at a CAGR of 21.9% from 2020 to 2027. Even if they capture just 0.10% market share in next 3-4 year their revenue will be around 1000 crores. - Emagia affiliate of TechNVision Ventures Limited which has Gia(AI-powered Digital Finance Assistant) like Kotak Bank's KEYA .Juniper Research released a study showing Chatbots will save banks $7.3 billion by 2023.Gia is for corporate customer while KEYA is for both retail and corporat.
- Apollo Finvest has product called Sonic for credit application. It has market cap of more than 150 crores . as per Mikhil(Apollo Finvest ) today fintech is where eCommerce was in 2007.Emagia has similar product thecreditapplication.com . It is Secure digital credit application platform . Emagia’s digital credit assistant Gia, is now available as a subscription service in the cloud. Gia is a natural language-based digital assistant, like Siri , Alexa or Kotak Bank's Keya, operates on voice or chat commands. Here are some of the latest skills of Gia for credit processing
Business License Verification – Simply ask Gia if a company has a valid business license. Gia will search the business license sites and provide the valid business license ID
Resale Certificates Verification – Simply ask Gia if a company has a valid resale certificate, Gia will search the related government websites and provide the valid resale certificate.
OFAC Verification – SImply ask Gia if a foreign entity is safe to conduct business and Gia will provide OFAC Verification
Business Address Verification – Simply ask Gia for a valid business address for a company and get the verification instantly.
ABC License Verification – Ask Gia to verify the alcohol beverage license for your customer.
Construction License Verification – Ask Gia to verify the construction license for your subcontractors
Business Credit Scores – Simply ask Gia to pull up credit reports from D&B, Experian, Credit Safe, Credit Risk Monitor, Ansonia, NTCR and others bureaus.
All these promising products makes TechNVision small fish in big pond.
If Solix wants to grow fast then it will need fresh funding. There are a couple of players who are interested as per some old interviews of Sai Gundavelli. But, so far management has decided against raising any fresh capital. I think one of the reasons to not take funding is the shareholding structure. TechNVision holds around 68.37% in Solix Technologies Inc and 66.24% in Emagia Corp (through AccelForce Pte. Ltd., Singapore)
Any stake sale or fresh equity will dilute control of TechNVision in Solix Technologies Inc and Emagia Inc.
I don’t know other shareholders of Solix Technologies but reputed VCs like West Bridge Capital, Sigma Partners, and Timeline Ventures are very early investors of Emagia Inc. They have not made money so far on it. I don’t know their current holding but we can get clarification by sending email to CS.
Emagia old fundraising from West Bridge Capital, Sigma Partners, and Timeline Ventures link : https://www.financialexpress.com/archive/emagia-to-expand-research-and-development-operations/120491/
Fundraising problem can be solved by raising funds in TechNVision instead of US-based subsidiaries. But, here is one more issue.TechNVision market cap on BSE is only 60 crores. Indian investors want to invest in a profitable and predictable business. Indian investors are not interested right now in promising futuristic business. They want to see profit and cash flow first while US investors are ready to pay for futuristic businesses. Both are right in their own context. But, this gap is going to close in future. Recent example success of Tanla Solutions, oh sorry now it is Tanla Paltform . I was investors in Tanla prior to 2010 and I have to book losses of around 50% . Two years back someone told me that he has invested in Tanla solution and look into it. That time price was around 30 . I explained my story and requested to stay away from it. But, he has given me some reasoning of time is changing for Tanla . To be frank, I felt pity for that guy. Now, he will have more than 15 times if still invested.Now, I feel pity for myslef for missing 😂 . Two overseas private equity players have bought stakes in cloud communication service provider Tanla Platforms from GSO Capital Partners, the hedge fund and credit investment arm of Blackstone group, via block deals. It is trading now on 436 and may go more up. Not many sensible investors might have invested around 30 nor they are going to invest in TechNVision at market cap of 60 ? Tanla is a prime example of serendipity in the stock Market. Market onion will be divided into two camps pro Tanla and against Tanla. Person like me who has missed it will try to find out just red flags and to be precise earlier there were.
Back to TechNVision , Initially, I discussed this stock when it was at Rs 45 (http://value2wealth.blogspot.com/2015/10/technvision-ventures-ltdsolix.html ) . If you remember I predicted this as a bamboo tree. That was the wrong timing from my side. Real bamboo tree was Tanla 😄 .My Twitter a/c follower and I requested company management to share more info about business, deals, and investors presentation to exchanges but so far we don’t see much improvement. They are busy in US business. If they want to grow using funding then they will have to raise through India based listed entity. Without funding they can still grow 20-30% but with some funding they can scale big with higher growth.
Now imagine the two imaginary scenarios.
Snowflake Listed in India but doing business in USA :
Revenue 402 million dollars ( around 3000 crores revenue) and EBITA loss of 2570 crores .
First of all, exchanges will put Snowflake on the highest possible ASM/GSM list. Based on towline growth some smart investors might be OK with 1x sales valuation i.e. 3000 crores. But, they will not able to buy sell due to GSM/ASM . How much are US investors are giving valuation to Snowflake Rs 507000 crores.
Solix and Emagia listed in USA also doing business in USA :
Business has good tailwind and they are at right time at the right place but not growing as much as Snowflake Inc due to various reasons but still capable to growing at 25% . Not only Snowflake Inc but even some other competitors like Colibra , Delphix are commanding good valuations from PEs. Combined revenue of Solix and Emagia is around 130 crores. US market they can still command 20 times sales, around Rs 2600 crores market cap but let’s assume only 1800 crores maket cap. Around Rs 1200 crores for 67% stake of TechNVision. That is 20 times to the current 60 crores market cap in India. I don’t say Indian Investors are wrong and US investors are right. I just believe this gap will narrow in the future. If you leave the size factor then we can compare TechNVision with Majesco .Few months back Majesco was trading at valuation of 600-700 crores range.Private equity firm Thoma Bravo bought it for $729m (Rs 5460 crores) . Indian company was holding 71% stake in US based entity (i.e. 3877 crores) . So , US based investors paid almost 6 times more than Indian investors valued the company on exchanges . We hope something similar get played in TechNVision in future.
Why US investors or even Berkshire Hathaway paying this much for cloud-based data Management Company ?
I search on Google and found some of the reasons those are not my finding about Snowflake but I agree with those.
Snowflake enables direct SQL queries against stored data but also the ability to load non-structured data. It scales pretty much fast. It can also create virtual versions of the underlying data in different formats, so different systems can access the data via Snowflake without having to make separate copies. All this flexibility means it’s easier to deploy a CDP and to make changes when new data is added. These features are directly relevant to customer data, which often requires adding new sources, accepting new data elements within existing sources and sharing the resulting customer profiles with different systems. This should greatly reduces the labor required to build and maintain a customer database.
The cloud has increasingly become the home for customer data and personally identifiable information (PII) for use in analytics and machine learning. Snowflake correctly read the tea leaves of cloud data innovation. With a strong focus on SQL as an engine, Snowflake’s capabilities are available to the world’s most popular languages for interacting with customer data.
Snowflake makes it easier for IT professionals to quickly move their data warehousing to the cloud and leverage pre-built analysis tools. Cloud-native solutions and related flexible business models open new opportunities. A majority of the market is still old-fashioned on-premise products based, but moving rapidly to the cloud. This is where the growth happens now.
Snowflake succeeded by going full speed in creating a scalable cloud-native solution, rather than trying to "patch old ways of working" with complex on-premise or hybrid solutions. it maintained the ability to use existing tools and skills in enterprises with its SQL compatibility.
Snowflake provides Data security – ensures data is classified according to its sensitivity, and defining processes for safeguarding information and preventing data loss and leakage. And, data governance is the common denominator that is the key to managing security, privacy and risk making it more effective and easier.
Customers deploy Snowflake to advance their businesses beyond what was once possible by deriving insights from their data from all their business users.
If you go through Solix’s whitepaper, blog , news and webinar , you will come to know most of these are supported by even Solix products. But Sonwflake is more popular. There might be a quality reason, lack of money power, or size issue. Solix is a more than 15 year old company archiving data solution for enterprise apps . But, it was not able to scale much. Now cloud adaption is presenting a huge opportunity. Size does matter to CTO (Chief Technology Officer). Now , combined revenue of Solix and Emagia is touching 20 million dollar it stated to get trust but still most of the big organization CTO will hesitate to give deal to 20 million dollar company. To overcome this issue they have a partnership arrangement with Big System Integrators like HCL Technologies , Cognizant , LTI ,Wipro ,Capgemini , Hexware and other countries' regional players .But , in this case they have to share revenue.
Regardless of size, they are still having good customer list. Like in AGM speech they mentioned Maruti and Hero Motors as their customers. Even if you see the announcement of Jan 2020 for customer acquisition in 2019 .
They are having the following impressive customers.
- Acco Brands, American manufacturer of office products
- AIG (American International Group), insurance and retirement provider, serving 87% of the Fortune Global 500
- Alberta Health Services, Canada’s largest health authority
- BAE Systems, world’s third-largest defense company
- BC Liquor Stores, top Canadian liquor retail distributor
- Catalent Inc., global provider of drug delivery technology and development solutions
- Citigroup, 4th largest bank in the United States
- Cuyahoga County government
- Edelweiss, leading personal wealth advisor
- Experian, world’s largest credit reporting agency
- GE Appliances, one of the largest appliance brands in the United States
- Health Care Service Corporation (HCSC), not-for-profit corporation health insurance company
- IFFCO Tokio General Insurance Company Limited, 3rd largest private general insurance company in India
- Iron Mountain, leading records management and information storage company
- Juniper Networks, leading networking hardware and infrastructure company
- LinkedIn, largest business social networking service
- Molson Coors, the world’s seventh largest brewer by volume
- SABIC (Saudi Arabia Basic Industries Corporation), largest public company in Saudi Arabia
- Santander Bank, national bank
- SONIFI Solutions, interactive content and connectivity solutions provider
- Stryker, Fortune 500 medical technologies firm
- Unilever, the world’s largest consumer goods company
- UnitedHealth Group, largest healthcare company in the world by revenue
- Xylem Inc., leading water technology provider
- Zurich Insurance Group, Switzerland’s largest insurer
Now, the question arises, why the combined revenue of Solix and Emagia is still below 20 million dollars if they have so many big impressive customers and comparable cloud products. My views are
- Cloud adaptation is started a few years back but still at the initial stage , even Snowflake has just 400 million revenue.
- Companies spent most of the budget developing application and on hardware , managing data maybe just a few percentages ( maybe around 5-6 %).
- Snowflake is a pure cloud based play while Solix is an old company. It has a lot of normal contracts (upfront payment during implantation) instead of Pay-as-you-Go . Now, most of the new customers might be acquiring at Pay-as-you-Go basis . It means small recurring revenue instead of large upfront revenue. It reduces current revenue drastically. If management gives breakup then that will clear the picture but it is very difficult to get this type of data from small cap management.
- Solix wants to acquire customers as much as possible, not focusing on revenue and profit.
- I don’t know the terms of partnership with Big System Integrators. But, they will have to pay them for the initial few years of a particular customer deal. Once, that period ends, that money will be flow into profit. As , size grows, they will start winning more deals themselves.
- It is playing a waiting game to achieve some scale and then think about profit. Magic of operative leverage, recurring payment model, stickiness of clients will kick-in once it achieves good scale.
If you have any doubts about the credibility of Solix then see the joint webinar with HCL Technology and Microsoft
Joint Webinar of Solix and HCL technologies
https://www.youtube.com/watch?v=jgBs0OJura0&t=474s
Joint Webinar of Solix and Microsoft
https://www.youtube.com/watch?v=mNaf7QuU7e8&t=11s
If you have time then go through this podcast as well - https://mission.org/podcast/ai-vs-ia-how-solix-technologies-is-pushing-both-into-the-future/
Now the question arises of what management can do to create some wealth for investors. They can do the following steps.
- Increase liquidity in the counter, TECHNVISION is a very closely held entity. Promoters hold 74.32 % for long time, some trust holds around 13.03 and NRI VALABOJU NARENDER holds 4.69 from ages. None of them sold a single share in the last 10 years as per my understanding. All together holds around 92% , only 8% share are liquids .
- Slowly Indian Investors are started to understand cloud and platform business. There are some firms who understand the value of tech business like Abakkus Asset Manager (Sunil Singhania) and some more. Talk to Indian Investors who understand the tech game and issue fresh equity instead of stake sell .Don’t consider the stock price on BSE exchange but real value. I am sure there will be some.
- Another very much possible option to approach US based investors / fund houses which are investing in Indian stock market . They are more likely to help fund raising for
TECHNVISION. Issue might be small size of just 9 million market cap . It may be small for them. - Invest this money back to US based subsidiaries for growth.
- Second but least prefers the option to sell a stake or whole US based company. But, that will be bad decision since both companies are now in a good position. It may be considered in the next 4-5 years, not now.
TECHNVISION is a very illiquid counter, it will be risky for retail investors who need money in short term or even 1-2 years. It may test patience. It may too early for many to see the story in numbers but we are hoping the valuation gap between US investors and Indian investors will narrow. We are not going to lose much on 60 crores market cap but unlimited gain on the upper side.
