Snowflake Stock Takes Beating Following Projections for Slower Revenue Growth

UTC by Tolu Ajiboye · 3 min read
Snowflake Stock Takes Beating Following Projections for Slower Revenue Growth
Photo: Depositphotos

After releasing a forecast that put its product sales growth under 70% for the fiscal year, Snowflake stock crashed 30%.

Snowflake Inc (NYSE: SNOW)  stock recently plummeted 30% due to slowing revenue growth. In its report for the fiscal fourth quarter ending January 31st, the cloud computing-based data warehousing company reported its slowest revenue growth in about three years. Snowflake said it lost $132.2 million, or 43 cents a share, on sales of $383.8 million for Q4. Meanwhile, the consensus estimate for Snowflake’s Q4 outing was earnings of 3 cents a share on sales of $373 million, according to Refinitiv.

Although Snowflake’s report showed revenue growth of 101% YoY in fiscal Q4, it still paled in comparison to the 110% from the previous quarter. However, the $132 million loss for the fiscal fourth quarter was better than the $199 million reported in the previous year for the same quarter. In addition, the data analytics software company also reported that it ended its fiscal fourth quarter with more than 6,000 customers.

Going forward, Snowflake projects that its product sales will grow less than 70% this year, after doubling last year. This comes even though its product revenue for the full preceding fiscal year almost doubled from the $554 million reported in the previous year, to $1.14 billion. For its next fiscal first quarter, the cloud software company anticipates a product revenue growth of 79% to 81%. By comparison, analysts’ expectations for Snowflake’s product revenue growth for the same period was 78%.

Snowflake Stock

Following its last results, Snowflake’s shares declined to under $185 in after-hours trading. This occurred even though SNOW initially closed with a 1.1% gain at $266.03 during regular trading.

Snowflake Executive Weighs In

During the past year, Snowflake’s headcount approached 4,000 at the end of the quarter, representing a 60% increase. According to the company’s execs, engineers have been rolling out efficiency improvements to the company’s software. This, in turn, has led to a reduction in the consumption of customer credits.

Snowflake CEO Frank Slootman explained in a conference call with analysts, that it was more about practicality than anything else. According to Slootman, “This is not philanthropy”. Instead, customers may feel the need to shift more workloads to Snowflake as economics improve.

Snowflake management is forecasting a 65% to 67% product revenue growth rate for the 2023 fiscal year. This roughly translates to an inflow of $1.88 billion to $1.9 billion. By comparison, analysts’ expectations for the same period is 66%, or $1.87 billion, according to FactSet.

However, several analysts predict that Snowflake would not have any issues meeting their projections. For instance, analysts at New York-based banking giant JP Morgan Chase said:

“Given a strong demand environment, we believe Snowflake’s FY23 outlook can land well above consensus, as some of its recent product innovations and investments see wider penetration.”

Furthermore, analysts at NYSE-listed American multifaceted financial platform Stifel stated:

“We expect management to follow historical patterns and guide conservatively on both the top and bottom line, but we do expect the current FY23/24 revenue estimates to move higher post the print.”

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