Snowflake Inc. (NYSE: SNOW) has been successful in leveraging tailwinds from the mass adoption of digital technology in recent months, with the high revenue retention rate accelerating the company’s topline growth. The business has thrived on the consumption-based pricing model, but the recent slowdown and continued losses have dampened investor sentiment.
Snowflake’s stock dipped after the management issued softer-than-expected margin guidance for the current quarter while announcing results for the first three months of fiscal 2023. Extending the recent weakness, the stock has slipped to a multi-year low and is yet to recover. However, the valuation looks high despite the decline.
Positive Top Line
The company, which operates a cloud-based SQL data warehouse platform to support use cases like data warehousing and data engineering, has registered stable revenue growth since going public around two years ago. The platform is designed for Cloud and allows customers to meet their analysis and storage requirements with a great deal of flexibility. An investment by Warren Buffett’s Berkshire Hathaway came as a shot in the arm for Snowflake in the early years. The top line has benefited from the pandemic-induced digital boom that is driving growth for tech companies in general.
Read management/analysts’ comments on Snowflake’s Q1 results
Snowflake looks poised to maintain the uptrend in the foreseeable future, thanks to the favorable market conditions and the company’s successful business model. It is worth noting that the cloud database market is expanding steadily, and Snowflake could get an edge by offering customers the convenience of working with multiple cloud service providers, rather than sticking to one. However, investors are concerned about its inability to turn profitable and to set a turnaround strategy.
Portfolio
The company recently announced the release of its healthcare & life sciences Data Cloud and the retail Data Cloud, as part of expanding the portfolio. It also continues to expand the partner network, the latest being the tie-up with Dell Technologies and Pure Storage.
From Snowflake’s Q1 2023 earnings call transcript:
“Our Snowflake Data Marketplace fuels our rich application development ecosystem and is Powered by the Snowflake program. Today, there are over 425 Powered by Snowflake partners, representing 48% quarter-over-quarter growth. Over the past three years, we have achieved high growth, while greatly improving unit economics, operating efficiency, and cash flow. The company has a fortified balance sheet with $5 billion-plus in cash, cash equivalents, and investments and zero debt.”
Cautious Outlook
In the first quarter, net loss narrowed to $0.53 per share from $0.70 per share a year earlier. The improvement reflects an 85% surge in revenues to $422.4 million. The top line also surpassed the consensus estimates. The remaining performance obligation, a measure of future revenue performance, was up 82%. At the end of the quarter, it had a total of 6,322 customers. Meanwhile, the company guided its second-quarter margins below the consensus estimates.
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Snowflake’s stock has lost more than 60% so far this year, continuing the downtrend that began around eight months ago. The stock traded slightly higher early Tuesday, after closing the previous session lower.