The Data Decacorn Derby

Databricks seems to be closing the gap on Snowflake faster than expected.

Last week Databricks shared some important updates on their business which allows us to compare the progress of the two companies.

Quarterly revenue between the two company shows nearly identical slope, two parallel lines. Snowflake recently exceeded $1b in quarterly revenue mark while Databricks just touched $750m and is targeting $925m for the next quarter.

Snowflake’s revenue growth rate has been on a long glide path to nearly asymptoting at 25% year over year. Databricks saw a resurgence in their growth rate from mid-23 to early 25, from about 50 to 60% - exceptional in a company at this stage.

This growth rate was catalyzed by the resurgence of interest in AI workloads after the launch of GPT-3.5 (the dawn of the modern AI era) in late 2022 and a rebounding software economy in early 2023.

Comparing the number of large customers generating more than a million per year for each company, Snowflake has about 90 more large customers.

Databricks continues to operate at about 15% better gross margin primarily because customers operate their own compute when using Databricks, whereas Snowflake bundles the compute and storage, compressing margins.

Databricks achieved profitability for the first time in the most recent quarter. Meanwhile, Snowflake tends to operate between -30% to -40% net income margin. In addition, Snowflake has heavy stock-based compensation expenses that creates sawtooth patterns in their profitability.

The gross margin impact of bundling cloud services is a contributor, but without additional insight into the relative sales and marketing and research and development budgets of the two companies, it’s hard to ascertain exactly the reason for the delta.

As the battle has continued, the distance between the two companies has narrowed & the future promises more of these two data decacorns duke it out. Customers win when market leaders compete this intensely.