Snowflake (NASDAQ:SNOW | SNOW Price Prediction) is proving the turnaround strategy is working. CEO Sridhar Ramaswamy, who took over less than a year ago, is making his mark by getting the cloud computing software solutions provider back on track.
After reporting fourth-quarter earnings following the market close on Wednesday and trouncing analyst expectations, investors are pushing SNOW stock 12% higher in early-morning trading.
Finally getting back up to speed
Snowflake product revenue has jumped 25% or more for 14 consecutive quarters, but has slowed down considerably over the years
Snowflake delivered solid results, with revenue hitting $986.8 million, up 27% year-over-year and beating Wall Street’s $956.9 million estimate. Product revenue, the core of its business, reached $943.3 million, a 28% increase from last year, and was driven higher by its data cloud and AI integrations.
The cloud data platform giant absolutely crushed analyst earnings forecasts of just $0.18 per share with adjusted profits of $0.30 per share. GAAP earnings did show a loss of $0.99 per share, but that reflected Snowflake’s heavy research and development spending and stock-based compensation costs in the quarter.
For the full year, revenue climbed 30% to $3.46 billion, with non-GAAP operating income hitting $92.8 million, a stark improvement from last year’s losses. Free cash flow also surged 42% year-over-year to $415 million. It was a spectacular quarter for Snowflake, which demonstrated the strength of its product lineup. It notched its 14th consecutive quarter of 25% or more of product revenue growth.
Snowflake also added 580 customers generating over $1 million in product revenue, a 27% increase from the year-ago period, and its remaining backlog swelled to $6.9 billion, up 33%. It, signals a robust pipeline, and with net revenue retention (NRR) of 126%, it indicates existing customers are expanding their spending with SNOW
Very good, but not great
As Snowflake cuts costs and focuses on AI, it should dial down the risk it faces even as competitive threats grow
The progress under Ramaswamy is real. With his focus on AI and controlling costs, he is pushing Snowflake in the right direction. The turnaround looks like it’s finally arrived, but don’t get out over your skis just yet.
While Snowflake’s 9% adjusted operating margins and $415 million in free cash flow mark a welcome shift from years of losses, GAAP operating losses of $386.7 million shows it’s still burning cash.
Also, while product revenue is still growing by double-digit rates, it’s been steadily declining every quarter for the past three years. In the second quarter of 2022, SNOW product revenue was up 70% year-over-year. It also forecasts Q1 2025 product revenue at just 21% to 22% growth.
And you can’t gloss over its past stock struggles. Shares fell 22% in 2024 and traded below its 2020 IPO price for a good part of the year. SNOW is still 61% below its all-time high of $429 per share hit in 2021. The turnaround is in place, but it is still fragile and not complete. A lot hinges on its ability to sustain growth.
A deep product bench
For the coming year, the outlook is promising, but investors should remain cautious. Snowflake guided first-quarter revenue to a range of $900 million to $905 million (up 22% to 23% year-over-year), and full-year 2026 revenue to $4.1 billion to $4.15 billion (a 19% to 20% increase).
Analysts see a 60% upside potential, but the full-year growth rate it guided towards is slower than the 30% increase it achieved last year. It suggests it is facing stiffer competition and AI spending pressures.
Snowflake’s AI driven products — Snowflake Cortex, Streamlit, and Snowpark ML — could see greater adoption amongst its Forbes Global 2000 customers, but it needs to convert trials into long-term deals. The cloud data platform said it has 745 Forbes Global 2000 customers, representing 5% year-over-year growth, but also 580 customers with trailing 12-month product revenue greater than $1 million, a 27% increase.
Risky business
The risks Snowflake faces are real. Competition from Databricks, which is reportedly prepping an IPO and is working closely with Meta Platforms (NASDAQ:META) in training its Llama large language model, is fierce and eating into Snowflake’s market share.
GPU-related costs for AI initiatives, like Nvidia’s (NASDAQ:NVDA) chips, are also squeezing margins, and it faces potential slowdowns if enterprises cut IT budgets if inflation worsens, the Federal Reserve raises interest rates, or Trump’s tariffs cause business to pull back.
There is also the possibility that its customer concentration — SNOW’s top-10 customers drive significant growth — risks churn if hyperscalers like Amazon (NASDAQ:AMZN) or Microsoft (NASDAQ:MSFT) build in-house solutions.
Valuation still matters
Snowflake’s valuation is still an issue. With a market cap of $55 billion, it gives it a forward P/E ratio of 108, which is sky-high for a company with decelerating growth. While companies moving from losses to profits will often see such valuation distortions, it also means any miss could tank its stock.
Snowflake is turning a corner — finally — but it remains a tightrope walk. Its growth was solid this past quarter and for last year, but the risks it faces could derail it fast. Investors can celebrate, just don’t drink too much of the bubbly.
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