Earnings Smackdown: Snowflake, MongoDB, Salesforce, and the Rise of Discount Retail

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2:40They actually got me into reading stats for anything. You're tuned in to the Investing for Beginners podcast. Led by Andrew Sather and Dave Ahern. Step-by-step premium investing guidance for beginners. Your path to financial freedom starts now. Starts now. All right, folks. Welcome to Investing for Beginners podcast. Today, Andrew and I are going to do some more earnings call breakdowns. We're going to discuss the differences between the AI world and the real world. We're going to talk a little bit about SaaS companies. And then we're also going to talk a little bit about companies that are dealing with the lower end grocery market.

3:19So with that, let's talk about some SaaS first. Yeah, let's talk SaaS. SaaS being short for software as a service this week. We are recording this the first week of December. A few notable companies have reported earnings. So we've got Snowflake, MongoDB, CrowdStrike, and Salesforce. Each of them kind of really showing a different kind of story. so I'm going to start with Snowflake first and maybe even combine these two because they're very similar but Snowflake had a huge hit to their stock on the earnings day it's down 11-12 % something like that last time I checked and for both Snowflake and MongoDB they are part of this transition we always hear about the cloud transition the cloud transition.

4:20According to both of them, management has said things that indicate that as a casual observer, I'm not an expert in cloud or software or anything like that. In my mind, I kind of see like, oh, the cloud migration has been going on for a long time. It's probably wrapping up. That's kind of always been my mindset. But you hear things from management in these calls and the things that they are saying. And they're talking about how it's something different. So as an example, for Snowflake, they have a migration that's going on in the on-prem. So cloud means it's up there in the cloud. It's up in the sky, right?

5:04It's in this digital world and not tied to the physical data centers that companies used to have to have. this sciometry software according to Snowflakes Management only 15 to 20 % of those legacy workloads have moved to the modern cloud cytometry software and I didn't know what that was so I had to Google it and Gemini says that it's data acquisition analysis and visualization so think about just different things that people are doing with data. I don't remember what it was. Maybe it was we had the guy who wrote Signals on our podcast years ago from Visual Capitalist. I'm sorry I'm blanking on his name, but it was a great interview.

6:00And I think he had mentioned how data was one of those things that's just been growing exponentially and continues to grow exponentially. I don't need to tell people how much data is growing and how much people are using it. But Snowflake definitely lives in that area. And according to them, in their type of migration, their little lane, their niche of migration for cloud, it's still very, very early. So definitely a growth company, definitely still having great growth numbers, but losing money. And so it's sometimes hard to gauge where a stock is going to go because even though the company and the business grows, it doesn't necessarily mean the stock price is going to follow.

6:45Yeah, exactly. And if I remember right, wasn't Snowflake one of the big IPO companies three, four years ago that kind of went crazy on the IPO? And I think it's probably struggled to get back to those highs since. So it feels, even though the company may be performing financially, it feels like it's underperforming because of that benchmark, if you will. Yeah. Yeah. To your point, actually, as of right now, it's still trading below that IPO. The IPO was in September of 2020. And I remember the IPO being a big deal for value guys like you and I, because people were saying, oh, Warren Buffett bought into the IPO and he never buys IPOs.

7:28And to your point, the stock peaked twice, went up really high, almost doubled both times, but has come down and has not had a nice three, four, or five years. Yeah. Yeah. I mean, I think it's important to the industry and what it does, but it just seems like it hasn't quite achieved its full potential yet, if you will. Yeah. It's hard. These companies, you can really go down the rabbit hole, and you probably should if you're going to be an investor in these. but as far as Snowflake that's kind of the takeaways I saw if you want numbers on their revenues are up 300 million and there's like I said still losing money but that's getting better so at least for this quarter okay all right I guess moving on to Salesforce All right.

8:28So next company up for analysis is Salesforce, ticker CRM. They recently reported earnings this week and they did okay. For the quarter, they were up 9 % in revenue. So they did 10.26 billion in revenue. Their operating margin, their non-gap, I should say, margin was up to 35%. And their current remaining performance obligations or CRPO was up to 29.4 billion, which is 11 % increase year over year. And that's actually a good thing. So I think one thing that I want to touch on a little bit about some of these SaaS companies, when you're analyzing them, as you start to do deep dives into these companies, you're going to come across a few metrics that may be confusing to you at first.

9:24The first one is what's called the rule of 40. And that's a method people use in the SaaS industry to measure the valuation, if you will. And it's a combination of revenue growth and, depending on the company, EBITDA margins or free cash flow margins. And so the companies that we're looking at today are all in the high 30s to low 40s as far as their rule of 40 number goes. So anything above 40, that's why it's called the rule of 40, anything above 40 is considered acceptable. Anything below that is maybe not necessarily bad, but it bears some keeping in mind. For those unfamiliar with Salesforce, it's one of the OGs of the software world.

10:16It's one of the first companies Mark Benioff started many, many years ago to offer apps that you could use online to do different kinds of office software products and different, I guess, what would you call productivity kinds of apps that you could use. But they have been growing for a long time. And the company is also embracing AI. And it's got a couple of new products that have seen very, very, very big success, growing over 100 % revenues for both of those products over the last year. So that's been great. I mentioned the current remaining performance obligation. That's another term that you probably want to understand if you're going to invest in this space.

11:03And basically what it means is they have been contracted to sell a certain product or a certain platform, but they haven't delivered it yet. So it's not money that they can recognize as revenue yet. And so companies like Salesforce will use this. Other companies like MongoDB, CrowdStrike, and probably Snowflake will use this to indicate what they think the company is going to do in the future. And so in this case, because Salesforce CRPO, easy for me to say, is higher than their current revenue growth, that actually bodes well for the company. It means that a couple of things. Number one, it means that they have performance obligations.

11:48They have contracted revenue. If they execute, they have contracted revenue that will be greater than what they're doing right now. And the other thing that is great is it helps management. It gives them insight into what the company could do if they execute. So as they grow the CRPO and they grow their execution, they should be able to see increased revenues and it gives them a lot more insight into how the company's doing as opposed to maybe Walmart, who doesn't have quite the insight into what they might be doing. So those are some things to keep in mind when you're looking at companies like Salesforce.

12:27Now, one thing I will tell you is Salesforce has done quite poorly this year. year to date. I believe they're down 27, 28 % for the year. So it hasn't been a great year for the company. They have also been going through a bit of a transition. For a long time, the company was very much a serial acquirer. They would spend a lot of money and buy a lot of different platforms and products to add on to what they're doing. They have reversed course on that over the last year or two. And so they've been trying to become air quote, more profitable. The Zuckerberg idea of the year of profitability, Mark Benioff tried to pull off the same kind of thing for Salesforce.

13:07It has not been the monster that it used to be, but it is still a potent force in the industry. And it's still one of the leaders in what it is that they do. So it's been interesting to kind of look over the earnings and how they did. I don't really consider myself a salesman by any stretch, but if I think of CRMs, I think of Salesforce and HubSpot, and I'm not very familiar with many others. Exactly. Who listening to this has not used Slack at some point in their life, in their business life? And that's one of the products that Salesforce offers. So So it's just an example of one small thing that they do for their customers.

13:53If you were an investor in this company and the whole year of profitability thing, how do you gauge something like that? I like how you mentioned how for Meta and Zuckerberg, he played it well. Wall Street reacted very well to that whole efficiency thing. And actually, they did today too as we're recording this. up another 5%, as he says, he's cutting metaverse spending by like 30%. And then you have maybe another company like a Salesforce, maybe trying to do something similar and not getting a similar reaction from Wall Street. So forgetting about Wall Street, as a long-term investor, how is somebody supposed to kind of...

14:37What's your take on interpreting those type of moves for management or that type of rhetoric? That's a great question. I would probably, because Mark Benioff is still in control of the business. I would probably be, in part, you have to give him respect because he started the business all those years ago and is still one of the OGs and it's still a powerful force in the industry, but it was an unprofitable business for a very long time. And so for them to switch gears like that, I guess I would probably be a little more on the wait and see aspect for me to see if the direction that they're trying to go is going to continue.

15:23And I would probably watch, if I was invested in the business, I would listen to every earnings call, every utterance of management to see, to make sure that that path is going to continue. And if there was any sort of change from that direction, that would be concerning to me. That's, I guess, probably how I would try to look at it. I would also try to look at other companies in the industry if there are any that are... This is not a space I play in much. So I would probably try to look around for other comps to see if there's other companies somewhat, air quotes, somewhat comparable to give me a reference.

16:02Okay, the company is saying that they can achieve... I'll just throw out a number, 30 % operating margins, and they're sitting at 22%. Are other companies in their industry doing that? Is that feasible? And so that's, I guess, probably how I would try to play it. The other big thing that I would keep an eye on for any of these companies that we're going to talk about is stock-based compensation. That is a big, big, big, big part of how they pay their employees, which that's a whole other podcast to discuss, but it is something that you want to keep an eye on as you're analyzing any of these companies.

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18:57if you are not subscribed to our free newsletter too bad you missed it but I did talk about stock based compensation and kind of digging into the footnotes and some stock based compensation will have operating leverage, others might not, I mean what if some of these companies that are very engineering heavy have to rely on those engineers to continue we don't know, I mean you can look at Microsoft and Adobe as maybe good examples of companies that did, but that's not always a guarantee. So 100 % agree with what you're saying. Checking the stock-based compensation and understanding where is that stock-based compensation deriving from?

19:38Is it the engineers? Is it management? Where is it being spent? And how much is it diluting the company? Yeah, all important things to understand. I'll throw MongoDB on here, hopefully quickly. they also mentioned how they believe this multi-cloud shift, this modernization still has legs to run. Talked about having seen it run another five to seven years. So he's talking about how they serve hyperscalers and they help hyperscalers. So in this cloud, this abstract digital cloud that is powering so much today. A company like MongoDB deals with the database, kind of similar to Snowflake, but for my interpretation, it's not exactly the same.

20:34But yeah, they're seeing this transformation for workloads that you need to have all this data that gets stored somewhere. A lot of stuff being shifted to MongoDB and a lot of it being this five to seven year kind of timeframe is how management is seeing it. So investors are definitely playing the long game on this one. One of the things I think is interesting, and I know it's not going to be the last time we talk about this, but the whole agentic AI kind of concept, the future of agentic AI, this idea that we're going to be, as customers, are we able to communicate with these bots that are going to do things for us like buy stuff for us online or maybe book a vacation and we don't have to think about anything.

21:25My hotel, my flight, and my rental car is all booked. These type of things companies are investing in and really trying to be the first to really have the best technology in there. And that is driving demand for not just cloud and AI, but then the companies that service cloud and AI like a MongoDB. So what I thought was interesting, another little tidbit is there's lots of kind of pilot, co-pilot, prototype AI agents that some of the enterprises are trying to experiment with. You contrast that with a lot of what they call AI native startups. These companies where that's their entire focus is trying to get something with agentic AI or one of these things.

22:16and those startups are actually running into issues against some of the technology that competes against MongoDB. So again, I'm far from an expert on this, but like Postgrease and Reddy's, apparently that tech does not have the type of scale that these startups are looking for and so they are turning to somebody like MongoDB and that is a great driver for that stock. just like with Snowflake MongoDB is not profitable yet profitability is improving if you look at the 9 months for 2025 versus the 9 months for 2024 profitability is getting better revenues are growing fast and it's another one of those so for the revenues 18 % in the last quarter and then you had 23 % year over year on the quarter before that.

23:17So definitely growing at those growthy growth numbers and showing that there is strength in this AI services area. But I don't have much other takeaways from that other than those type of things. It's interesting to see, though, how much they still think that this trend has a lot of room to run. Yeah, that's been my kind of takeaway whenever I've looked at these companies from kind of a high overview is that they all feel like there's still a long runway ahead for all of them in the different pockets that they kind of operate in. I will freely admit MongoDB falls outside my circle of competence, but it sounds like it's still a very important business to the continuation of the cloud as well as what's happening with AI.

24:18Yeah. It's fun to watch though. Yeah, it is. From the sidewides, it is entertaining to watch for sure. They're up 62 % year to date. So I'm picking up some momentum. Kind of similar to what you're saying with Snowflake, not a great last two, three, four years. but picking up some momentum right now. Yeah. That's awesome. All right. I'm going to throw CrowdStrike out there. For full disclosure, this is a company I do own. I own a blistering 0.02 % of the company or something like that. So we did a competition for Value Spotlight a while back to try to learn about different businesses. And I figured I should probably have some skin in the game.

25:04So I did buy a sliver of this company just to try to force me to pay more attention to it. Did it work? I haven't really. No, not really. No, the skin in the game has not helped. But this exercise today is forcing me to relook at the company after not looking at it for a little while. So the company recorded earnings recently. year to date, the company is up 55%. So they've had a good year so far. You may or may not remember, but a couple of years ago, they had a outage, a big internet outage. I don't remember the specific companies that were impacted, but they were big ones. And so the company took a pretty good hit during that period.

25:53And that's one of the risks of investing in a company like CrowdStrike. So So for those unfamiliar with what CrowdStrike does, they are a cloud cybersecurity company. And they specialize in endpoint security, which don't ask me what that is. But they definitely do more than just like your Norton VPN kind of thing. So they specialize working with enterprise customers. So it's very important. The company has been around for a little while and it has performed very well. So if we kind of look at their latest quarter, they had a pretty decent quarter. They were up around, let's see, revenues. They did$1.23 billion, so 22 % year-over-year increase.

26:41And their subscription revenue, which is the vast majority of their revenue, was$1.1 billion. So that was up 21%. We're going to use another term here. So this is annual recurring revenue or what's called ARR. This is another common term thrown around in the SaaS world. And basically what it means is that they are estimating based on subscription revenue that they've already generated how much revenue they should do for the year. So it, again, gives them a good insight into how the company is doing based on the revenue for the company. The company has recently turned profitable, which is awesome.

27:23And so this is something that they've been going towards for a little while now. And so that's something that's exciting to see. It indicates that they might have some operating leverage for the business. One of the things that kind of stands out about CrowdStrike compared to some of their competitors, which would include Cloudflare and some other ones, is that they have a single platform. And so it's called Falcon. And then what they do is they have different modules that they can offer to do different parts of security, depending on how much involvement you want CrowdStrike to have in being your security vendor.

28:02And one of the things that the company likes to mention is how much people are growing, assimilating more and more modules into the business. So it's kind of like a land and grab. They try to attract people by giving them a good entry point price-wise as well as product. And then people see how good the product is and more and more people buy more and more modules, which in turn makes CrowdStrike more money. And so one of the things that you'll see when you analyze this company is them talking about five modules, six modules, seven modules, and eight plus modules and how much those percentages are growing every year.

28:41And if I jump over to CrowdStrike, or I'm sorry, to Fiscal.ai real quick, I can tell you that. So for the A-plus modules, last year, they had a 24 % growth rate in that, 34 % in the 7-plus modules, and 49 % in the 6-plus modules. So those are all really, really strong numbers. And that indicates that they have a good product as well as something that people like and are willing to pay for to help protect their stuff. So really, really good, really, really strong business. It's run by a really good CEO. Guy knows his stuff. He's been doing it for a while and I trust him. So yeah, that's about all I got.

29:26Okay, cool. Do you want to move on to the real world? Yeah, let's move on to the real world. Okay. Dollar Tree reported earnings. And it felt like deja vu, really. Because we talked about Walmart a few weeks ago. And the theme from that was the lower income consumer is currently being squeezed and you are seeing a shift to value from the middle to higher income consumer.