Snowflake (SNOW) shares plunge 14% on 3rd consecutive guidance miss; Analyst flags rich valuation

Snowflake (NYSE: SNOW) shares fell nearly 14% in pre-market Thursday after the company reported first-quarter earnings and guided lower for Q2 and FY24.

While Q1 results came in better than expected, the company’s outlook disappointed investors. Q1 EPS came in at $0.15, better than the consensus estimate of $0.06. Revenue grew 48% year-over-year to $623.6 million, beating the consensus estimate of $611.13M.

"Data has gravitational pull, and given the vast universe of data Snowflake manages, it is no surprise that interest in data science, AI and machine learning is escalating while its uses are rapidly evolving," Frank Slootman, Chairman and CEO of Snowflake, said.

Product revenue was $590.1M, representing a 50% year-over-year growth. The company now has 373 customers with trailing 12-month product revenue greater than $1M and 590 Forbes Global 2000 customers. The remaining performance obligations increased 31% year-over-year to $3.4 billion.

The company expects Q2/24 product revenue in the range of $620 - $625M, representing 33%-34% growth, below the expected $647M.

For the full year, the company expects product revenue of $2.6B, representing a 34% year-over-year growth, down from the company's prior forecast of $2.705B.

Speaking on the earnings call, CEO Slootman said Snowflake continues to operate "in an unsettled demand environment.”

“While enthusiasm for Snowflake is high, enterprises are preoccupied with costs in response to their own uncertainties.”

Furthermore, the company announced Steve Burke's appointment to its Board of Directors, effective immediately. Following the company's annual meeting on July 5, John McMahon will step down from the Snowflake board after 10 years of service.

Stifel analyst Brad Reback marginally lowered the price target on Buy-rated SNOW shares on weaker-than-expected guidance.

"While it is clear that optimization trends continue, we believe future uptake of SNOW's growing product set especially AI and ML solutions, should help offset these headwinds, allowing the company to sustain 30%+ revenue growth in coming years," Reback wrote in a note.

Guggenheim analyst John DiFucci is much more cautious on SNOW stock as he reaffirmed the Sell rating with a $105 per share price target.

"We continue to view Snowflake as a well-managed company, and there’s no question that the soft macro backdrop has had influence here, but this guide likely introduces questions about what kind of company it is. Is it a Cloud-based Data Platform company that customers utilize to satisfy disparate data workloads, or is it a Cloud-based Data warehouse company in an increasingly competitive market where alternatives have now replicated the early distinguishing features that separated Snowflake?" DiFucci said.

"Our field work indicates very little traction beyond data warehouse workloads, but again the macro influence is probably heavy here. Regardless, at 21.7x EV/NTM Rec Rev, SNOW is the most expensive enterprise software company in the world … for now."

By Davit Kirakosyan and Senad Karaahmetovic

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