Snowflake Is Not For Faint-Hearted, Long-Term Opportunity To Good To Overlook: Analyst

Piper Sandler analyst Brent Bracelin reiterates Snowflake Inc SNOW with an Overweight and a $194 price target. The revised FY24 product revenue growth outlook of 34% was below Bracelin's 40% estimate and Street expectations.

Despite increasing headwinds to the growth trajectory over the next 3-9 months, the analyst remains bullish on the potential for Snowflake to scale operations to over $10 billion over the next 6 years. 

Solid execution on free cash flow metrics hints at the longer-term profit potential, the analyst wrote.

Needham analyst Mike Cikos reiterates Snowflake with a Buy and a $180 price target. Snowflake cited a relatively dramatic change in behavior from its oldest customer cohort - both unexpected and significant given the revenue generated by more-established customers. 

The company discussed weaker trends from larger Enterprise customers following Easter, which has persisted through May, leading to the downward revision of FY24 product revenue growth and operating margins. 

Larger customers have adjusted their retention policy or shifted their data storage location, which (1) reduces Storage costs and (2) speeds up queries and effectively reduces Compute. The competitive landscape has not changed despite these changes, as customers are not moving workloads off Snowflake.

Oppenheimer analyst Ittai Kidron maintains Snowflake with an Outperform and a $190 price target. Snowflake delivered a solid quarter, exceeding consensus revenue/EPS estimates, gaining from high NRR, the new customer adds, and large-customer traction in 1QFY24. 

However, product revenue guidance for 2QFY24 was below the Street estimate, with slower consumption and lower data retention baked into expectations. 

Still, innovations around artificial intelligence (including generative AI) can provide an uplift due to the large data requirements of those models. 

The analyst sees a long tail of solid revenue growth as workload migrations to the Cloud and Snowflake's technological advantage result in continued share gains. 

Morgan Stanley analyst Keith Weiss maintains Snowflake with an Overweight and a $215 price target. The analyst highlights that despite SNOW's 3% product revenue beat, degrading consumption patterns in Q1 forced another reduction in FY24 revenue targets. 

While disappointed in the slower pace of growth now expected in FY24 and frustrated by the lack of predictability in the model, he grows more confident in the longer-term opportunity ahead for Snowflake and the company's competitive positioning for that opportunity as new product launches garner traction, data ecosystems begin to form, and the benefits of Generative AI begin to accrue. 

More broadly, he notes that the company cited a 91% YoY increase in data science, machine learning, and AI use cases on the Snowflake platform. 

The bottom line, given the volatility in the revenue model, SNOW is not for the faint of heart. Still, given the strong positioning for an estimated $248 billion market opportunity, the long-term potential is too good to overlook.

Raymond James analyst Simon Leopold reiterated an Outperform rating with a price target of $170.

The re-rating follows an F1Q24 beat, with a lower F2Q24 and FY2024 outlook vs. the Street. Snowflake's consumption model appears more vulnerable to macro headwinds leading to lower customer consumption rates. 

Snow's growth benefited from the ease with which customers could ramp usage, but it now suffers as it is an application where customers can easily dial back. 

Shares have come under pressure due to a lower outlook. The analyst expects Y/Y growth to bottom this year and re-accelerate in FY25/CY24. 

Price Action: SNOW shares traded lower by 17.90% at $145.46 on the last check Thursday.