Building a Generational Business Databrick by Databrick
Tomasz TunguzVenture Capitalist If you were forwarded this newsletter, and you'd like to receive it in the future, subscribe here. Building a Generational Business Databrick by Databrick
Last week, Databricks announced their Series I financing at $43b. At the same time, they released quarterly figures similar to a public company’s reporting. Those numbers provide the first public view into one of the most valuable private companies in the world. It’s also an opportunity to compare Databricks to Snowflake. Two mammoths competing for customers’ workloads offer different architectures. Snowflake’s cloud analytics database thrives on structured data. Databricks’ technology rips through unstructured data in a cloud data lake house. Choosing Snowflake’s closest historical quarter by revenue provides a side-by-side comparison of their financial profiles.
In Q2 2022, Snowflake generated roughly the same amount of revenue. Snowflake was growing at 85% y/y compared to 51% for Databricks. Notably, the macroeconomic environments couldn’t have differed more. The Fed Funds rate in 22 was at 0.33%. Today, it’s 5.5%. So Databricks is sustaining top decile growth despite stiffer headwinds. Databricks’ product gross margins, which exclude any professional services work, top Snowflake’s by more than 10 points. Some customers run Databricks on their hardware (called on-premises or on-prem), whereas all Snowflake customers run on Snowflake’s cloud. Because Databricks doesn’t incur infrastructure costs when running on-prem, the business enjoys higher gross margins. If more Databricks customers move to the cloud, these figures may converge. Databricks counts almost 50% more customers than Snowflake at the same time, & nearly 50% more $1m+ customers. A different distribution characterizes Databricks’ customer base. Databricks tallies more large accounts & more small accounts. This explains Snowflake’s $61k ACVs compared to Databricks’ $37.5k , while Databricks has a greater number of million-dollar-plus contracts. Soon, we’ll be equipped to compare longitudinal trends & one day relative efficiency. For now, Databricks’ growth, despite the environment, fueled by the demand for AI is a promising sign for startups. Plenty of demand exists to buy innovative data infrastructure. |
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