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snowflake
The stock was falling sharply after the cloud data software company published disappointing guidance for its fiscal year 2023 that overshadowed strong results for the fourth fiscal quarter ended Jan.
One of the most expensive cloud software stocks by almost any measure and one of the fastest growers in the sector, Snowflake’s stock has been subject to even modest disappointments. In premarket trading Thursday, Snowflake shares fell 22% to $205.99. Snowflake (Strip: Snow) was released to the public September 2020 at $120 per sharebut doubled on its first trade.
For the quarter, Snowflake reported revenue of $383.8 million, up 101%, and ahead of Wall Street expectations of $372.6 million. Product revenue for the quarter was $359.6 million, up 102%, and ahead of the company’s $345 million guidance range to $350 million. (Snowflake does not provide general revenue guidance.) Non-GAAP gross margin was 75% for the quarter. Adjusted free cash flow was $102.1 million, or 27% of revenue.
Snowflake CEO Frank Slotman said in an interview with Baron That quarter was “exceptional,” but he acknowledged revenue beat guidance a little less than in other recent quarters.
One reason associated with the company’s unusual consumption-based revenue model — customers pay for the computational time they use, neither more nor less, Slotman said. Slotman notes that a software adjustment in January allowed clients to do the same workloads with fewer resources — he said the adjustment cost the company about $2 million in just three weeks in January. “This is not an act of charity,” he says, noting that the change will ultimately benefit the company. “When you make something cheaper, people buy more of it,” in this case counting time. Slotman notes that the company, which used to sell arithmetic time by the hour, is now selling it by the second.
But he also noted that Snowflake had an “incredible sales performance this quarter,” and secondary metrics underscore his position. The company said its net revenue retention rate, a measure of repeat business, was 178%, up from 173% in the October quarter. Remaining performance commitments were $2.6 billion, up 99% year over year, accelerating from 94% growth in the prior quarter. The company now has 5,944 customers, including 184 with excess revenue of more than $1 million — up from 116 just one quarter ago.
For the full year, product revenue was $1.14 billion, up 106%, while adjusted free cash flow was $149.8 million, up 12%.
For the April quarter, the company expects product revenue to come in at $383 million to $388 million, up 79 percent to 81 percent from a year ago and roughly flat from the previous quarter, but slightly above Wall Street consensus at $382 million. The company expects a non-GAAP operating margin for the quarter of negative 2%, which corresponds to a positive 5% last quarter on the same basis.
For the full year, Snowflake expects product revenue of $1.88 billion to $1.90 billion, up 65% to 67%, below analyst consensus estimates of $2 billion, with operating margins of 1% and adjusted free cash flow margin of 15%.
Slotman notes that the company is taking a conservative approach to guidance—noting that the original forecast for the January 2022 fiscal year was 80% growth, and the actual increase was 26 percentage points higher. He points out that the company has registered a large number of new customers who are just starting out and have not yet generated any revenue at all, and says that the company will not get strong expected revenue from customers yet who do not have a history on the platform.
Snowflake too announce Acquisition of Streamlit, a San Francisco-based company that provides software to facilitate the creation of data visualization applications on top of the Snowflake platform. While not disclosed in the press release announcing the deal, Slotman says the company is paying $800 million, 80% of which is in stock, and the rest in cash. He says the deal won’t add any significant revenue, but it will add about $25 million this year in operating expenses, costs already reflected in the guidance.
Even with the shares down, shares are trading at about 34 times expected current year sales, a valuation few other companies can match.
Write to Eric J. Savitz at eric.savitz@barrons.com
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