Snowflake beats expectations but stock falls on fears of decelerating revenue growth – SiliconANGLE

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Shares of the cloud data warehouse giant Snowflake Inc. were battered and bruised in extended trading today, even though the company delivered solid second-quarter results and guidance that came in above expectations.

The company’s stock fell more than 7% after-hours, with analysts saying that its likely shareholders are concerned over the possibility of a second-half revenue deceleration implied by the outlook. Update: Shares closed down almost 15% Thursday.

Snowflake reported second-quarter earnings before certain costs such as stock compensation of 18 cents per share, while revenue jumped 29%, to $868 million. The numbers were better than expected, since analysts forecast earnings of just 16 cents on sales of $852 million.

The company also said it delivered $829 million in product revenue, ahead of the consensus estimate of $814 million. It ended the quarter with 510 customers and trailing-12-month product revenue of more than $1 billion.

All told, Snowflake delivered a net loss of $317 million in the quarter, down from a loss of $227 million in the same period one year earlier.

Snowflake Chief Executive Sridhar Ramaswamy (pictured) was full of enthusiasm, hailing “another strong quarter” in which it surpassed the high-end of its own product revenue guidance.

“The quarter was hallmarked by innovation and product delivery, and great traction in the early stages of our new AI products,” Ramaswamy said. “With the combination of our platform, the network effect of collaboration and our AI innovations, we have a huge opportunity ahead to deliver even greater value to our customers.”

Snowflake’s cloud data warehouse offerings have become more relevant to enterprises thanks to the ongoing shift from traditional on-premises servers to the cloud, and in recent months they have been further boosted by the growing demand for data to power artificial intelligence workloads.

The company has responded by introducing a number of AI-related features in its data platform, resulting in increased demand for its services. In addition, the company has stepped into the large language model space with Snowflake Arctic, which is an open-source alternative to proprietary models such as OpenAI’s GPT-4o.

Snowflake said it ended the quarter with $5.2 billion in remaining performance obligations, up 48% from a year ago. That’s an encouraging sign for investors. RPO is generally used as a guide to help them understand future revenue, indicating how much it expects to earn from its existing contracts with customers. It includes revenue that has been invoiced but not yet paid, and future amounts that will be invoiced for goods and services not yet delivered.

Looking to the third quarter, Snowflake said it anticipates product revenue in a ballpark of $850 million to $855 million. The midpoint of that range is ahead of the Street’s target of $851 million.

In addition, Snowflake raised its full-year outlook for product revenue, saying it’s now looking for $3.356 billion at the midpoint, up from an earlier forecast of $3.3 billion.

Given the strong results and outlook, the after-hours decline may have come as a surprise, but analysts pointed out a number of issues that investors might want to nitpick at.

Evercore ISI analyst Kirk Materne said in a note to clients that the guidance, although improved, still indicates a “significant deceleration” in product revenue growth from the first half of the year. He also pointed to the company’s deferred revenue, which was slightly lower than expected.

“This could be contributing to some of the overhang on the shares in the after-market,” he said.

Holger Mueller of Constellation Research Inc. told SiliconANGLE that some investors may also be concerned about the huge amount of cash Snowflake has blown through, with the company spending more than $1 billion of its reserves in the first six months of the year. In addition, he said, there may be questions about how the company will deliverer on its targets with respect to net income.

“Snowflake had a very good quarter on the revenue side, growing 30%, but its net loss was up more than 40%,” Mueller said. “So something will have to give in the second half of the year, as somehow Sridhar Ramaswamy and team say they intend to end the full year with an operating income increase of 3%. The other question is when will Snowflake finally deliver on an annual profit? It’s unlikely to do so this year.”

Meanwhile, D.A. Davidson analyst Gil Luria told Reuters that the company did not pair its increased revenue projection with a rise in its margin forecast. On a conference call, Snowflake executives explained that the margin forecast was left unchanged because the company is still waiting to deploy new graphics processing units in its data centers.

Prior to today’s movements, Snowflake’s stock had declined 11% in the last 12 months, compared with a 33% gain in the tech-heavy Nasdaq index.

Photo: SiliconANGLE