Shares of Snowflake (NASDAQ: SNOW) are down more than 22% in premarket trading Thursday after the company’s forecast for Q1 margin fell short of analyst expectations.

Snowflake reported a fourth-quarter loss per share of 43c, down from 70c loss per share in the year-ago period and missing the consensus estimates of EPS of 2.6c. Revenue came in at $383.8 million, up from $190.5 million in the year-ago period and topping the analyst consensus of $372.8 million.

Product revenue was reported at $359.6 million, up from $178.3 million YOY and above the expected $348.7 million. Net revenue retention rate totaled 178% in the quarter, up from 168% YOY and beating the expected 164.4%.

Adjusted gross margin was 71%, compared to the analyst consensus of 70.8%.

Snowflake reported a customer count of 5,944 in the period, up 9.7% quarter-over-quarter, and slightly below the expected 5,962.

For the first quarter, the company expects adjusted operating margin to be -2%, compared to the analyst expectations of 67.6%. Product revenue in the first quarter is expected in the range of $383 million to $388 million, compared to the consensus estimates of $385.8 million.

For FY2023, Snowflake expects product revenue in the range of $1.88 billion to $1.90 billion, in line with the analyst consensus of $1.89 billion.

“We report revenue on what people are actually consuming during the quarter. We have tons and tons of customers that we have zero history with that we somehow have to project exactly what they’re going to do and how they’re going to grow,” said Frank Slootman, CEO of Snowflake.

Snowflake generates revenue through a so-called “consumption model” rather than the standard subscription-based model.

Consumption model is different from the software-as-a-service (SaaS) model, which is based on a contract.

“Over time, people will get it. They’ll grow up with it, get used to it, I hope,” said Slootman.

JMP analyst Patrick Walravens reiterated a Market Outperform rating and $385 price target on Snowflake. Walravens sees the after-hours move as a chance to buy SNOW stock due to:

“1) SNOW is disrupting the data management industry with its data cloud and cloud-native architecture; 2) the cloud data platform addresses an ~$90B TAM; 3) Snowflake is led by an A+ management team, including CEO Frank Slootman and CFO Mike Scarpelli; and 4) the company’s consumption model passes the benefits of platform enhancements to its customers, and while this dynamic impacts revenue at times, investors should understand that, as Mr. Slootman pointed out, “This is not philanthropy, it stimulates demand.”

Stifel analyst Brad Reback lowered the price target to $240.00 per share from the prior $350.00 on the Hold-rated stock.

“While it will likely take sometime for the market to digest today's news, we continue to believe Snowflake's disruptive consumption based data-platform and pricing model, coupled with workload secular-growth, should generate sizable new logos gains and strong up-sell/cross-sell activity, yielding 50%+ top-line growth in coming years,” Reback said in a memo.

By Senad Karaahmetovic | [email protected]