Snowflake's Conservative FY25 Guidance And CEO Transition Stir Analyst Debates: Optimism For AI Innovations Amid Cautious Forecasts

Snowflake Inc SNOW shares are trading lower after the company reported fourth-quarter financial results, issued guidance, and announced a CEO transition Wednesday. Morgan Stanley downgraded the stock from Overweight to Equal-Weight following the report.

Oppenheimer analyst Ittai Kidron maintained Snowflake with an Outperform and lowered the price target from $240 to $220.

The analyst said Snowflake delivered a solid quarter, exceeding consensus revenue and EPS estimates, benefiting from high NRR, new customer adds, and large-customer traction. Yet, the fiscal 2025 product revenue guide was well below expectations, and they replaced the CEO. 

The analyst is bullish, believing the outlook shortfall is driven by highly conservative guidance assumptions and contrary to recent consumption trends to minimize future revisions and set a more accessible bar for a new CEO.

The analyst noted this sets up Snowflake to deliver beats throughout the year and grow revenue closer to recent cRPO trends. Innovations around AI and the availability of additional services can provide additional uplift. Kidron projects first-quarter revenue and EPS of $784.3 million (prior $796.8 million) and $0.12 (prior $0.19).

Canaccord Genuity analyst Kingsley Crane reiterated the Buy rating with an unchanged $230 price target.

Snowflake shares are indicating down ~20% after hours as the company provided initial fiscal 2025 product revenue guidance of 22% Y/Y growth, de-emphasized its external $10 billion fiscal 2029 product revenue target, and announced that CEO Frank Slootman would step down with current SVP, AI Sridhar Ramaswamy taking over the role.

Crane noted several factors indicating that the business is performing and will perform better than at first blush. He flagged record RPO growth, including cRPO growth of 28.5%, net retention at 131%, declining the least it has in the past six quarters, eight out of Snowflake’s top 10 customers increasing revenue sequentially, and a new guidance philosophy introducing more prudence into the model than in prior years.

Crane projects first-quarter revenue and EPS of $786.3 million and $0.15.

Mizuho analyst Gregg Moskowitz reiterated a Buy and lowered the price target from $255 to $205.

While product revenue growth of 33% Y/Y beat the Street’s 30% target, Moskowitz said many were hoping for some more upside. Net new product revenue was below the fourth quarter of 2022, though this was balanced by encouraging booking commentary and strong re-acceleration in cRPO/RPO bookings growth. 

All that said, the shares will come under significant pressure today as investors digest the resignation of CEO Frank Slootman and an impoverished fiscal 2025 product revenue guide of only 22% Y/Y, he noted. Still, the guidance looks conservative, leaving room for multiple upside vectors.

Moskowitz projects first-quarter revenue and EPS of $785 million (prior $799 million) and $0.25.

Truist Securities analyst maintained a Buy and lowered the price target from $250 to $210.

While disappointed with the financial outlook, the analyst noted several drivers in the story to make investors constructive at current levels. Valuation implied by after-hours trading and updated estimates indicates that shares have returned to the orbit of other highflyers in the group. 

The analyst noted that the management team was significantly conservative in their outlook. The analyst projects first-quarter revenue and EPS of $786.3 million (prior $797 million) and $0.12.

Piper Sandler analyst Brent Bracelin maintained an Overweight and lowered the price target from $250 to $240.

The ~20% sell-off in Snowflake shares has created an attractive entry point to own a marquee AI data platform with a high-margin $3 billion+ revenue run-rate model that could more than 3x to $10 billion within five years, the analyst said. 

While the CEO transition and material fiscal 2025 growth reset to 22% was unexpected and heightened near-term execution risk, the analyst noted several upside levers in the second half tied to new products that could re-accelerate consumption with the addition of new AI workloads.

Despite valuation remaining at a premium of ~15x EV/S and ~48x EV/FCF on calendar 2025 after the pull-back, this is the lower end of 3-year historical levels, Bracelin noted. 

However, the analyst said secular growth prospects enhanced by AI, a proven operating model with 28%+ FCF margins, and strong leadership warrant a premium. Bracelin projects first-quarter revenue and EPS of $785.3 million and $0.19.

Needham analyst Mike Cikos maintained with a Buy and lowered the price target from $265 to $240.

Snowflake’s fiscal 2025 product revenue guidance of 22% surprised versus the sell-side forecast of 29% Y/Y growth, Cikos said. He noted the guidance as highly conservative as it assumes no contribution from new products and no benefit to revenue from the launch of Iceberg Tables.

The barebone guidance has been kitchen-sink since it considers the entirety of fiscal 2024 despite last year’s status as a tale of two halves, where consumption trends meaningfully improved during the latter stages of the year, he stated.

Though Snowflake wants to remove any doubt of potential guidance cuts, the 22% starting point feels draconian, per the analyst. Additionally, he noted the guide as providing ample room for outperformance under new CEO Sridhar Ramaswamy.

Cikos projects first-quarter revenue and EPS of $784.6 million and $0.26 (prior $0.18).

Spear Alpha ETF SPRX has over 9% exposure to Snowflake and has gained over 13% year-to-date.

Price Action: SNOW shares traded lower by 20.1% at $184.00 on the last check Thursday.

Photo: courtesy of Snowflake