Snowflake crushes Wall Street’s expectations amid ‘stabilizing’ economy
The cloud-native big-data company Snowflake Inc. posted strong financial results and issued bullish guidance for the final quarter of its fiscal year, sending its stock higher in extended trading today.
The stock, which had already gained 2% in the regular trading session, jumped by more than 7% after-hours on the back of the report.
The company logged a net loss for the third quarter of $214 million, rising slightly from a loss of $201 million a year earlier. It reported earnings before certain costs such as stock compensation of 25 cents per share, well ahead of Wall Street’s target of 16 cents. In addition, it revealed revenue of $734 million, growing 32% from a year earlier. That also came in above expectations, with analysts targeting sales of just $714 million.
Snowflake sells cloud data warehouse services that are becoming increasingly popular with enterprises. Its platform is used by customers to store, process and consolidate data that can be used to derive business insights and train artificial intelligence models.
Snowflake Chairman and Chief Executive Frank Slootman (pictured), also highlighted the company’s product revenue growth of 34% from a year earlier to $698 million. “These results reflect strong execution in a broadly stabilizing macro environment,” he added.
In a note to clients, Evercore ISI analyst Kirk Materne said Slootman’s comments on the improving economic situation were especially reassuring for investors. He noted that the sentiment echoes what other cloud and software-as-a-service businesses have been saying. “The management’s commentary around the stabilizing macro environment combined with the higher Q4 guide gives us more confidence that Q4 could ultimately represent a bottom in terms of normalized growth,” Materne said.
The company has recently begun trying to position itself as a useful partner for enterprises in their artificial intelligence initiatives, which have become more popular of late due to the buzz around generative AI. It says its platform is ideal for AI projects, as it provides highly curated and optimized data that’s necessary for training large language models and other kinds of AI systems.
In addition, Snowflake is looking to tap generative AI to improve the productivity of its own customers. During the quarter, it announced a host of AI-powered services and features, including Snowflake Copilot, an LLM-based assistant that lets users ask questions of data in plain text, write and refine SQL queries and filter results.
Digging deeper into today’s report, the company revealed it now has 432 customers with trailing-12-month product revenue of $1 million or greater, up 52% from a year earlier. It also reported remaining performance obligations, a measure of work signed but not yet finished, of $3.7 billion, up 23% from last year.
Holger Mueller of Constellation Research Inc. said Snowflake delivered a strong quarter, growing its revenue by almost a third compared to the same period one year earlier. The biggest challenge the company faces is to try and rein in its spending, the analyst said, as its costs of doing business grew faster than its revenue did.
“The good news is that the sales and marketing spend is shrinking, and for the first time in the company’s history it accounted for less than 50% of its overall cost base,” Mueller explained. “R&D spending is growing though, and this is what investors like to see as it bodes well for the future. Snowflake’s losses were up, but only by two cents a share. As long as the company keeps growing it can manage the current cost base, so Slootman’s optimism looks to be warranted.”
There were other encouraging metrics too, including a net revenue retention rate of 135%, which shows that Snowflake’s revenue would have grown by 35% in the quarter even if it failed to add any new customers. It also reported adjusted free cash flow of $111 million, well ahead of the Street’s forecast of $90.3 million.
Snowflake’s earnings and revenue beat was welcome news for shareholders, with its 50% growth in new big ticket customers especially promising, said Charles King of Pund-IT Inc. “CEO Frank Slootman’s comments regarding a ‘broadly stabilizing macro environment’ likely quelled the concerns that many have had about the health of the cloud computing and data analytics market,” King added. “That seems reasonable but Snowflake’s success could also reflect a growing appreciation of the company’s solutions and value proposition among enterprise customers.”
Third Bridge analyst Jordan Berger told SiliconANGLE that Snowflake has emerged from a challenging year to reassure investors with an uptick in growth. “Snowflake has a massive market opportunity in front of it, however cloud cost cutting remains an important trend and Snowflake’s net revenue retention continues to decelerate,” Berger said. “As cloud infrastructure vendors like AWS and Azure experience revitalised cloud demand, monitoring correlation with Snowflake consumption will be key.”
Looking to the fourth quarter, Snowflake forecast product revenue of between $716 million and $721 million, ahead of Wall Street’s call for $696 million. For the 2024 fiscal year, the company is bumping up its product revenue forecast to $2.65 billion, up from its earlier forecast of $2.6 billion.
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