Categories Analysis, Technology

Should you invest in Snowflake (SNOW) stock during the dip?

Elevated operating costs, mainly those related to sales and marketing, continue to eat into margins

Snowflake Inc. (NYSE: SNOW) has seen its customer base growing steadily since going public a few months ago. After strengthening its foothold in the domestic market the cloud technology company is looking to expand internationally, armed with products designed for the global market, especially in these times of large-scale technology adoption.

Profitability

The California-based cloud data warehouse is yet to generate profit consistently, but its impressive revenue performance indicates the bottom-line is probably moving towards the positive territory. Elevated operating costs, mainly those related to sales and marketing, are eating into margins currently, which is a common trend among early-stage tech firms. Of late, operating margin is showing signs of improvement.

The recent dip in Snowflake’s stock price, after trading sharply higher in relation to revenues earlier, offers a buying opportunity. The strong top-line performance and the positive long-term outlook for the industry the company represents justify the high valuation. That should ease investors’ concern to some extent, but the fact that Snowflake is a loss-making entity calls for caution. The consensus rating on the stock is moderate buy, and experts remain bullish on the growth prospects.

Road Ahead

With a wide range of services – such as data storage and data engineering — Snowflake looks well-positioned to tap the unfolding opportunities in data operations and cloud. The company’s cloud platform facilitates easy data access, helping customers manage their AI, machine learning, and data science workloads effectively.

For fiscal 2022, our focus is to turbocharge our Snowflake Data Cloud with NASA workload execution expansions and refinements as well as expand our data federation with numerous new additions to the Snowflake marketplace. While our selling motions address some of the world’s smallest as well as the largest data states in the world, we will have continued emphasis on landing and expanding in the largest enterprises and institutions, not just in the Americas, but also in EMEA and Asia Pacific.

Frank Slootman, chief executive officer of Snowflake

Loss Narrows

Investor sentiment took a beating after Snowflake posted a wider-than-expected loss for the most recent quarter, and the stock slipped to a new low soon after the announcement. However, the bottom line improved to a loss of $0.70 per share from last year’s $1.67-per share loss. At $190.5 million, revenues were sharply higher than in the year-ago period and above the estimates.


Read management/analysts’ comments ofn Snowflake’s Q4 results


Shares of the company closed the last session higher, recouping their recent losses. After going through a volatile phase, they are currently trading close to the IPO price. The stock has declined 14% since the beginning of the year and the value nearly halved after hitting an all-time high in December.

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