Snowflake Tops Estimate And Lifts Forecast But Its Challenges Remain

Snowflake Inc SNOW topped both revenue and earnings estimates with its latest quarterly results amid stabilizing growth observed by its cloud computing partner Amazon.com AMZN. Being its largest client, Amazon is often considered as essential to the company's success. Datadog Inc DDOG, who is also a cloud partner of Amazon, also reported better than expected third quarter results earlier in November. 

Quarterly Highlights

For the quarter that ended on October 31st, Snowflake reported revenue grew 31.8% YoY to $734.2 million, but still ended with a net loss of $214.3 million, improving from last year’s comparable quarter when it lost $201 million. Analysts projected revenue of $713.8 million. Product revenue amounted to $698 million, topping analyst estimates of $669 million.

However, adjusted earnings amounted to 25 cents, which translates to a 127% improvement, also topping analyst estimates of adjusted earnings amounting to 16 cents per share. Although Snowflake succeeded in narrowing its losses on a YoY basis, its sales and marketing expenses amounted to $355.1 million along with $332.1 million it spent on research and development, both of which squeezed its bottom line.

Outlook 

For the undergoing quarter that will end in January, Snowflake guided for product revenue in the range between $716 million and $721 million, topping FactSet’s estimate of $696 million. Snowflake also lifted its 2024 product revenue forecast from $2.60 billion to $2.65 billion on the back of AI-driven demand strength. Earlier in November, Snowflake introduced AI into the conversation by launching Snowflake Cortex service that enables companies to build large language models, which are the foundation of any generative AI story.

Snowflake’s success is also owed to cloud giants who make its platform available to their customers because its tools are simply better at performing certain tasks, at least for now. 

Besides Amazon whose AWS is Snowflake’s largest hyperscale customer, Snowflake is also counting on Microsoft Corporation MSFT through its Azure, as well as Alphabet GOOG-owned Google through its Google Cloud Platform. But Snowflake committed $2.5 billion under its expanded deal with Amazon AWS, to be spent over the next five years as Snowflake and Amazon develop industry solutions, deepen product integrations, while intensifying sales collaboration and marketing efforts. Together with Amazon, more precisely AWS, Snowflake gathered over 6,000 customers with about 84% of Snowflake customers running their cloud workloads on Amazon-owned cloud platform. But Amazon Web Services and Google Cloud could ratchet up competition along with other competitors, such as Salesforce CRM that recently introduced its real-time data solution, Genie, possibly challenging Snowflake in the future.

Snowflake’s results reflect strong execution in a stabilizing macroenvironment, but the company still needs to look out for competitors.

Snowflake proved its ability to grow its top line, showing it is at the forefront of cloud data technology with its unique offering. Unfortunately, despite the impressive revenue growth, Snowflake still hasn’t reached profitability. Although its innovative cloud data solutions position it well for future growth, it needs to fix persevering net losses and navigate its reliance on third-party cloud providers.

DISCLAIMER: This content is for informational purposes only. It is not intended as investing advice.