On Thursday morning, shares of data storage business Snowflake (NYSE:SNOW) dropped by 14% after the company revealed poor fourth-quarter earnings and forward projections.
The 40% product revenue growth projection will not be enough to prevent investors from becoming sour, according to Citi analyst Tyler Radke, who has a buy rating and $225 per share price objective on Snowflake (SNOW) shares.
Radke noted that while “being 7 [points] below earlier expectation,” Snowflake’s fiscal 2024 product sales projection of about 40% year over a year still puts it as one of the fastest-growing software companies, and one that is doing it profitably (with 25% FCF margins repeated). Notwithstanding this, we anticipate a decline in trading activity for the stock in light of the revised forecast. We will await the call to evaluate demand inputs.
Compared to the $582.1M predicted by analysts, Snowflake (SNOW) projects first-quarter product sales of $568M to $573M for fiscal 2024. This is a year-over-year growth rate of 44% to 45%.
To put it another way, the business anticipates a 40% year-over-year increase in product sales, bringing in $2.705B for the whole year. The company forecasts an operating profit margin of 6% and an adjusted gross margin of roughly 76%.
In addition to reporting quarterly results and outlook, Frank Slootman and Snowflake have approved a $2 billion stock repurchase program.
With a neutral rating on Snowflake stock, BTIG analyst Gray Powell has voiced his concerns about the company’s product revenue outlook for fiscal 2024, citing that newer customers are ramping consumption at a slower-than-expected pace and weakness bookings compared to the company’s own expectations.
Although “management looked extremely confident in the first [fiscal 2024] growth estimate and highlighted great visibility on current customer spending patterns,” the remark “likely disappointed most investors,” Powell said.
After the recession, Powell said Snowflake is still firm investors want to acquire. Still, growth is “decelerating at a quicker than projected rate” for the third time in four quarters.
An analyst with an outperform rating at William Blair, Kamil Mielczarek was more optimistic about Snowflake, noting that the company’s extension of its relationship with Amazon Web Services, as well as new products, should help it continue to grab share and increase its financial performance.
Mielczarek predicted that Snowflake’s free-cash-flow margin would increase 30% over the next several years. “We have confidence in Snowflake’s capacity to continue to capture share and meet its long-term growth ambitions,” he said.
Even though Jefferies had called Snowflake stock “a top fundamental story” before the results were released, the firm now has doubts because of factors like clients “pressing the airbrakes” on their capital investment plans.
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