Snowflake plunges as outlook suggests sales growth slowing

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Snowflake (NYSE:SNOW) shares plunged nearly 30% in after-hours trading, Wednesday, after the data-warehousing company reported fourth-quarter earnings that beat expectations, but forecast slowing growth ahead.

The Frank Slootman-led Snowflake (SNOW) said it lost 43 cents a share for the period ending January 31, on $383.8 million in revenue, up 101.5% year-over-year. Analysts were expecting the company to report a loss of 43 cents a share on $372.9 million in sales.

In addition, Snowflake (SNOW) said performance obligations came in at $2.6 billion, up 99% year-over-year, while net revenue retention was 178% as of January 31.

Snowflake shares were down almost 30% to $185.48 in extended trading.

For the first-quarter, Snowflake said revenue should be between $383 million and $388 million, up between 79% and 81% over the same period a year ago.

Full-year product revenue is expected to be between $1.88 billion and $1.9 billion, with product gross profit margin expected to be 74.5%. That forecast is in line with prior estimates, but suggests sales growth is slowing as revenue had been doubling on a year-over-year basis every quarter for almost the past two years.

The company also announced its intention to acquire Streamlit, a framework to build and simply and accelerate data applications. Terms of the deal were not disclosed, however.

Last month, Cowen cut its price target on the data warehousing company going into the fourth-quarter, lowering it to $410 a share from $450, as the firm said the sector is seeing lower earnings multiples, but Snowflake deserved a "high premium" given its growth and margin profile.

Comments

[my_symphony2003]

Snowflake and Tesla are about the two toughest bubbles to pop, but they will burst too. And of course there are still the "crypto" tulip out there. Be careful folks.

[Guraaf]

@my_symphony2003 what would it take for Tesla bubble to pop. Seems its totally impenetrable.

[Tdog88]

@Guraaf they would need to stop growing over 50% every quarter and Elon musk would have to resign. Until then, it’s hard to see it pop and they annihalte every earnings since they sell out every car they make. They also have the truck and Tesla Semi coming which could be huge as well. Crypto isn’t really a bubble, that should be separated. It’s a store of value now for big hedges and institutions and supply is limited. I see crypto as actually a decent play right here.
I own no Tesla or Crypto, but am not ignorant to why these have held up during the fast and brutal market correction we are in the midst of.

[Bernard IV]

These companies will show huge net margins of 25%+ once they begin to achieve scale. Not everybody understands this.

[my_symphony2003]

@Bernard IV Most of people understand this, but a good company is not equivalent to a good stock, valuation matters. It's hard to hold a hot potato, it's almost impossible to hold snow flake, with warm hands, lol

[Guraaf]

@Bernard IV I think everyone understood that and that is why the stock is so richly valued. The problem is that they need to execute to show more than 25% net margins when they get there. And nobody is going to just hand over their money. Stock headed towards $150 by Q2 results.

[my_symphony2003]

Beautiful snowflake, nice to see hard to hold.

[Guraaf]

What are some other stocks that are likely to face a Snowflake moment in the next one year? Would like to consider shorting.

[Turk Malloy]

@Guraaf Just keep an eye on who is reporting earnings. If they are considered a growth company with 0 net revenue - there are good target no matter who they are.... FYI - I bought puts on LCID and made 50% . Wish I was paying closer attention to SNOW - I missed it.

[Guraaf]

@Turk Malloy Any more puts to buy now?

[jeffk100]

@Guraaf MDB HUBS are two that are yet to face the reckoning of revaluation. Those can both be cut in half and should absolutely be cut in half!

[farwest]

Drastic decline in expected growth. This goes far lower.

[Archman Investor]

More “innovation” perhaps?

[Rondayvous]

100% of profit used to pay the TAXES on the stock based compensation, and customer acquisition is slowing. The company will do great, the executives will do better, the only losers will be investors. Time to wake up.

[Turk Malloy]

@Rondayvous "100% of profit used to pay the TAXES on the stock based compensation" - I need to pay better attention to the income statement for items like this

[Franfran]

$100 soon

[Nicholas Istvan Kiss, CFA]

On Sale. Just like MNDY or ZS recently, I think shares will bounce back quickly after initial fall. Growth is still strong, guidance is somewhat conservative, margins will improve significantly further. There were ne bad news on earnings call either.

[farwest]

@Nicholas Istvan Kiss, CFA growth is not strong at all. Guiding $1.9B revs full year. Last Q was $383M, so annualized that's $1.62B. So remainder of year is only a paltry $280M additional?? Growth rates just fell off a cliff. Am I missing something?

[Nicholas Istvan Kiss, CFA]

@farwest yoy revenue grew 101% in Q4, that is still strong. Furthermore, remaining performance obligations, which are a good indication of future revenue growth, grew 99% yoy. That is also really strong. These are the facts.

And there is the guidance... 56% yoy growth for 2022, after growing 106% in 2021. This is obviously conservative. But as we have seen for other SaaS companies as well, they just do it this way. Guide conservative and beat. For this reason Q4 quarters have additional risk, because companies guide here for the entire next year. In order to set up a path of continous beat and raise for every quarter, they have to begin with a quite low annual estimate. I think this is what Snowflake has done. Fundamentals tell a different story.

[Legitimate]

@farwest I’ll buy in at around $110ish. 1.9B rev 66B company YIKES. 15x rev seems okay to start a position

[German-Investor]

That is exactly the problem if you buy a stock that is hugely overvalued and priced for better than perfection. Hopefully a few investors here learn a lesson or two...

[Guraaf]

@German-Investor What other similar stocks are there that are priced for perfection? I would like to watch them and perhaps even short.

[jeffk100]

@German-Investor a few have definitely learned a lesson of not to buy too high. I have the profits from selling short to them to prove it!

[gygy1]

I will buy this at 15 times sales. Around $30B mcap.

[bazooooka]

@gygy1 but will you still want if growth slows to the point that you can get it that cheap?

[Pjs4]

@bazooooka excellent point

[Turk Malloy]

@gygy1 The great CRM which has had excellent growth AND is mightly profitable has a 7-8 ev/sales. Dont be foolish thinking 15 times sales is a good number.

[Ishi Kenjo]

Falling daggers!!!

[Mister Doom]

They have negative earnings, $300 was ridiculous.

[Rondayvous]

@Mister Doom Even worse than that, any earning will go to mgt, not shareholders. Over a billion in sales and investors don’t get a penny to show for it.

[farwest]

Only drops 30% should be the scathing headline. Maybe some value to be had after a 70% decline...

[InvestingIdeas]

Looks like Snowflake is melting under the heat

[ithinking]

@InvestingIdeas this world will be running indifferently without SNOW.

[Ishi Kenjo]

@InvestingIdeas All the tender snowflakes flaked out on Snowflake!!!

[Jon Brien]

Remember one thing about the stock market you can't believe anything anyone says about anything. Do that and you'll be safe.

[Kennan Mell]

@Jon Brien I don’t believe you

[Iroha Isshiki]

Talk about melting

[AI STONKS]

Winter is here..

[Serratic]

I've often wondered about the wisdom of naming a company... Snowflake.

Perhaps no wisdom was involved.

[Jon Brien]

@Serratic no two are the same

[jayurbain]

@Serratic "Snowflake" is a database schema or way of structuring information in a database. It's basically an extension of the simpler "star" schema. They allow you to write more efficient queries that aggregate results. So the name makes sense. They've taken this design and have done a nice job of adapting it for cloud environments.

[Just Some Guy]

What are these metrics - "performance obligations" and "net revenue retention"?

I've never followed SNOW though I worked in the area, I could never imagine them having an actual moat, but I salute them doing the best with what they had, LOL.

[SquareBear]

@Just Some Guy remaining performance obligation (RPO) (sometimes called performance obligations) are liabilities carried on SaaS companies balance sheets which represent the remaining portions of contracts already signed with customers… calculating the change in RPO is a proxy for bookings (recently sold contracts) growth.

Super overly-simplistic net rev retention example:
I had 2 customers last year, both at $100 ARR ($200 ARR). One of them shrinks their subscription to $80 but the other expands their subscription to $150 ($230 ARR total)... my net rev retention vs last yr is 115% ($230/$200).

[Just Some Guy]

@SquareBear, clear enough, but it's odd other industries don't seem to make a habit of it. The future is after all always what it is, and not truly constrained by such projections. Something they do in the SaaS area, I guess. Thanks for the explanations.