Shares of once-high-flying software unicorn Snowflake Inc. are finally falling to earth.

The stock price of the cloud data warehousing provider fell nearly 14% after-hours today on a weaker-than-expected full-year forecast amid signs of a slowdown in spending by large enterprise customers.

The quarterly numbers weren’t bad overall. Losses narrowed in its fiscal first quarter on revenue that beat analysts’ expectations. The quarterly net loss of $165.8 million, or 53 cents a share, improved from a net loss of $203.2 million, or 70 cents a share, a year earlier.

The earnings were just below the consensus forecast of 52 cents a share. Revenues of $422.4 million jumped 85% from a year earlier and remaining performance obligations of $2.6 billion rose 82%, although down sequentially from the fourth quarter.

Snowflake said it closed the quarter with 6,322 customers, including 206 customers who spent more than $1 million over the past 12 months.

Forecast disappoints

The company said second-quarter revenues are likely to come in between $435 million and $440 million, which was about in line with analyst expectations. For fiscal 2023, it guided to a revenue forecast of between $1.89 billion and $1.9 billion, a slight uptick from its prior range of $1.88 billion to $1.9 billion.

However, investors were clearly hoping for more. Snowflake executives said there was a clear slowdown in spending by some of its largest customers. “Last year we experienced significantly higher growth due to the growth of customers’ own businesses,” said Chief Financial Officer Michael Scarpelli. “This year the growth was less than expected. Although these customers are still growing, we believe that they are impacted by macroeconomic headwinds and their consumption will be limited.”

Executives said the long-term outlook for the business remains unchanged and that they expect long-term trends to remain in line with their growth objectives. On a conference call with analysts, Chief Executive Frank Slootman (pictured) repeatedly reiterated that the company’s strategic objective is for profitable growth. “Snowflake is not a growth-at-all-costs company,” he said. “Investments must lead to innovation that creates differentiation. There is no waste at Snowflake.”

Executives noted that the company is sitting on $5 billion in cash and investments and that it added 16 of the world’s 2,000 largest companies as customers in the quarter. Snowflake booked four eight-figure deals in the quarter and listings in its software marketplace grew 22% to more than 1,350. “Over the last three years we’ve achieved high growth while significantly improving operating economics and cash flow,” Slootman said.

Hyperscale challenges

But Snowflake’s challenges may be more entrenched than executives are letting on, said Adam Ronthal, a research vice president at Gartner Inc. “The competitive landscape has changed significantly since Snowflake launched” in late 2014,  he said. “Back then they were highly differentiated and were re-energizing a market that was a little stagnant at that point.”

But he added that in the intervening seven years, the hyperscalers such as the cloud computing giants have spent time modernizing their platforms and updating their games. “Some areas Snowflake pioneered like the separation of storage and compute are now table stakes,” he said.

Ronthal pointed to Snowflake’s Snowgrid cross-cloud collaboration platform as an example of how hyperscale competitors are frustrating its growth ambitions. “It’s an intercloud data mesh, and that’s somewhat different, but one widespread barrier to adoption is that the hyperscalers charge egress fees that can add up if you’re moving around large amounts of data,” he said. “Snowflake is competing directly against offerings from the cloud service providers and this is a CSP world. We just live in it.”

Snowflake executives made no reference to cloud competitors during the briefing with analysts, blaming the business slowdown solely on economic factors. “The sequential decline in RPO [from the fourth quarter of 2021 ] is due to a tough year-over-year comparison,” Slootman said. “We still achieved our internal target.”

Plans to add 1,500 employees this year are still on track and Slootman said he sees economic uncertainty as a net positive in the long run. “In troubled times people want more data and that is going to drive Snowflake consumption,” he said.

Photo: Snowflake