Snowflake's Upcoming Earnings: Balancing Investor Optimism with Analyst Caution Ahead of 2Q

Needham analyst Mike Cikos reiterated Snowflake Inc SNOW with a Buy and a $216 price target.

Snowflake will report 2QFY24 earnings after the market close on Wednesday. Investors focused on Datadog, Inc DDOG guidance for 3Q, Snowflake supposedly 'backing away' from more positive Bookings comments at Summit, and recent resets to Snowflake's guidance. 

Cikos believes trends improved in June and July, which bodes well for the quarter and FY24 guidance. Investors expect roughly $645 million - $650 million in Product Revenue during 2Q. 

Investors have penciled in a 4% Product Revenue beat ($22.5 million - $27.5 million) versus the $622.5 million midpoint of guidance. The magnitude of the upside is slightly ahead of the 3.4% ($19.6 million) delivered in the prior quarter. 

Cikos believes investor expectations are fair to conservative, which should set up a solid print and response in the share price. Snowflake held its 1Q earnings call on May 24 – when Consumption trends were bottoming out. 

The analyst believes the relatively bleak environment at the time led to a subdued outlook compared to more recent positive data points regarding June and July trends. 

Several clients communicated to Cikos that after Snowflake's Investor Day at Summit, the company walked back comments that Bookings trends and customer sentiment improved during June. 

The analyst views this as reflecting clients getting ahead of themselves in interpreting improved Bookings. 

Also, it reflects management level-setting expectations as Infrastructure Software experienced a material re-rating during the June timeframe - i.e., while Bookings likely improved, it's not a 1:1 correlation for driving in-quarter Product Revenue. 

Cikos' conviction stems from management's prioritization of sales productivity to drive improved efficiencies and his Quarterly Headcount Tracker, which indicated Snowflake's headcount growth decelerated to 6.9% (from 10.3% in 1QCY23 and 10.6% in 4QCY22). 

The analyst expects revenue of $657.95 million in Q2 (consensus $662.24 million) and an adjusted EPS of $0.12 (consensus $0.10).

Cikos projected revenue of $2.74 billion in FY24 (consensus $2.76 billion) and $3.46 billion in FY25 (consensus $3.63 billion).

The analyst expects adjusted EPS of $0.61 in FY24 (consensus $0.62) and $0.72 in FY25 (consensus $0.99).

Also this week, Citigroup analyst Tyler Radke maintained Snowflake with a Buy and raised the price target from $189 to $191.

Last week, at least two analysts lowered their price targets on the stock while another maintained a Sell rating.

Barclays analyst Raimo Lenschow maintained an Overweight and lowered the price target from $203 to $190. Mizuho analyst Gregg Moskowitz reiterated a Buy and lowered the price target from $190 to $180. Guggenheim analyst John Difucci reiterated a Sell and a $105 price target.

Difucci's field checks with partners indicate a challenging new business environment, possibly more so than last quarter and certainly not an improvement, with the two largest partners seeing GenAI as a headwind due to uncertainty and budget being reallocated elsewhere, in addition to continued macro pressures. 

Based on the numerical setup, he believes Snowflake should exceed consensus 2Q Product revenue expectations, but not by much.

Difucci expects revenue of $661.6 million in Q2 (consensus $662.24 million) and an adjusted EPS of $0.04 (consensus $0.10).

Difucci projected revenue of $2.76 billion in FY24 (consensus $2.76 billion) and $3.59 billion in FY25 (consensus $3.63 billion).

The analyst expects adjusted EPS of $0.42 in FY24 (consensus $0.62) and $1.16 in FY25 (consensus $0.99).

Price Action: SNOW shares traded higher by 0.61% at $152.81 on the last check Tuesday.