Snowflake’s stock falls on guidance miss, as it confirms plans to acquire Neeva
Shares of the cloud data warehouse company Snowflake Inc. sank in extended trading today after the company slashed its full-year outlook, sparking concerns about its exposure to reduced enterprise technology spending.
Snowflake did at least beat expectations as it delivered its first quarter financial results. It also announced its previously reported intention to acquire the conversational search startup Neeva Inc. for an undisclosed price.
The company reported a net loss of $225.6 million for the quarter, rising from a loss of $165.8 million one year earlier. Earnings before certain costs such as stock compensation came to 15 cents per share, beating Wall Street’s target of five cents per share. Revenue for the period rose 48%, to $624 million, ahead of the $608 million consensus estimate.
Snowflake also reported product revenue rose 50% from a year ago, to $590.1 million for the quarter. Product revenue accounts for the bulk of the company’s sales, representing the fees customers pay to use its software for storing data and running queries.
Whatever optimism was stirred by Snowflake’s earnings and revenue beat evaporated quickly as the company offered its forecast for the second quarter. Officials said they anticipate product revenue of between $620 million and $625 million, representing lower growth of just 33% to 34%. The forecast was some way below Wall Street’s forecast of $649 million in product revenue.
For fiscal 2024, Snowflake said it’s expecting product revenue of $2.6 billion, below the consensus estimate of $2.7 billion.
Third Bridge analyst Jordan Berger said the 34% growth forecast is a “worrying decrease” from the previous year. “[It is] a clear indication of exposure to the same economic headwinds impacting the greater cloud computing industry,” he said. “It raises significant questions about the company’s ability to execute whilst continuing to invest considerably in sales and marketing as well as research and development.”
Shareholders seemed to agree with that assessment, as the lower forecast prompted an after-hours selloff that sent Snowflake’s stock down more than 12%, erasing a small gain made during the regular trading session.
Despite the short-term pain the company is likely to face, Snowflake Chief Executive Frank Slootman (pictured) told CNBC he remained very optimistic about the long-term future. “If you were to zoom out a little bit and say, ‘Let me take a five-year view of the growth here,’ it is tremendous,” the CEO said. “Very large secular trends, very big markets are forming here, and we can’t lose sight of that by looking at a single period, so I’m super-optimistic about the path that we’re on.”
Slootman said he was especially excited about the role Snowflake can play in the rise of generative artificial intelligence, because of the way such models train so well on the company’s “highly curated and highly optimized data.”
In a second announcement, Snowflake also confirmed its intention to acquire Neeva, a privacy-focused search startup co-founded by former Google LLC executive Sridhar Ramaswamy.
Neeva was founded in 2019 but first came to attention back in June 2021 when it launched a novel subscription-based search engine that aimed to provide a better experience than Google by stripping out the advertisements from its results. More recently, Neeva has been expanding its search capabilities to answer more abstract queries with the use of generative AI, similar to OpenAI LP’s ChatGPT. Earlier this week, as a precursor to the sale, Neeva announced it would be shutting down its consumer search business.
In a blog post, Snowflake co-founder and President of Products Benoit Dageville said the company plans to “infuse and leverage” Neeva’s AI search capabilities across its cloud services. “Neeva allows us to tap into some of the most cutting-edge search technologies available to bring search and conversation in Snowflake to a new level,” he said.
During the quarter, Snowflake’s investment arm led a $62.9M Series A funding round in the data-as-a-service startup Cybersyn Inc. It also announced the launch of its new Manufacturing Cloud, an industry-specific offering that aims to support manufacturers in the automotive, technology, energy and industrial sectors in addressing information silos within their organizations and collaborating more efficiently with partners, suppliers and customers.
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