Revenue Scaling Experts, Snowflake has seen its ups and downs. Many are looking at the current price as a buy. But with all such investments, you never can tell.
Snowflake Inc. (NYSE: SNOW), a leading data cloud provider, has experienced a tumultuous year, with its stock plummeting 48% from its peak in mid-February. Initially, Snowflake’s year began on a high note, but a combination of management changes, heightened competition, and less-than-stellar quarterly results have dampened investor sentiment.
Despite these challenges, the recent downturn in Snowflake’s stock price might present a valuable entry point for discerning investors, especially given the company’s current valuation. The firm’s prospects appear promising as it embarks on several strategic initiatives aimed at harnessing the growing potential of artificial intelligence (AI) in the data cloud sector.
Snowflake continues to edge out Databricks in revenue scale, though Databricks is catching up and could be on track to add similar incremental revenue this year as SNOW./citi pic.twitter.com/5Cgn5o7iyQ
— Kourosh (@kouroshshafi) June 25, 2024
In its fiscal 2025 first-quarter results, which ended April 30, Snowflake outperformed expectations. The company reported a 34% increase in product revenue year-over-year, reaching $790 million, surpassing its forecast range of $745 million to $750 million. Following these results, Snowflake upgraded its full-year product revenue projection from $3.25 billion to $3.30 billion, suggesting a 24% growth from fiscal 2024. The company also hinted at the potential for further upward adjustments in revenue guidance, supported by a strong increase in its remaining performance obligation (RPO). The RPO, which includes deferred revenue and non-cancellable contracts yet to be recognized as revenue, grew at a rate surpassing that of the company’s top-line growth, indicating an acceleration in revenue expansion in the near future.
Notice that revenue growth accelerated last quarter for $SNOW and you’ll understand that AI is a tailwind for the business
Having a consumption-based business model, Snowflake is capitalizing on the higher consumption that AI startups have for their services
This is what helps… pic.twitter.com/lbS6iRoqTG— Dissecting the Markets | See pinned tweet (@dissectmarkets) June 25, 2024
Snowflake’s optimism is further buoyed by its projections for an expanding total addressable market (TAM), driven by advancements in AI technology. During its 2024 Investor Day, management projected that Snowflake’s TAM could rise from $152 billion in 2023 to $342 billion by 2028. This anticipated growth is tied to the burgeoning AI sector, where Snowflake plans to introduce several innovative products.
Among the new offerings slated for release in the current fiscal year are Cortex AI, Document AI, and Snowflake Copilot. Cortex AI is designed to allow customers to develop generative AI applications, such as chatbots, utilizing large language models (LLMs) based on their proprietary data. Snowflake Copilot aims to enhance customer productivity by aiding in the writing of structured query language (SQL) code. Document AI, another LLM, enables the extraction of information from various document types. These products are expected to not only boost expenditure from existing customers but also attract new clientele, further driving revenue growth.
$SNOW – “Snowflake Stock: Finally, It’s A Buy” analyst says, do you agree? https://t.co/McCcjvPmQm
— Grateful till Infinity and Beyond (@Mygitana01) June 26, 2024
Key Points:
i. Stock Decline: Snowflake’s stock has fallen 48% from its 52-week high, impacted by management changes, increased competition, and disappointing quarterly results.
ii. Strong Q1 Performance: Despite broader challenges, Snowflake reported a 34% year-over-year increase in product revenue for the first quarter of fiscal 2025, surpassing expectations and raising its full-year revenue forecast.
iii. Promising Revenue Growth: The company’s remaining performance obligation (RPO) grew significantly, suggesting potential acceleration in revenue growth in the coming periods.
iv. Expansion in AI: Snowflake anticipates a significant expansion of its total addressable market (TAM) due to opportunities in artificial intelligence, projecting growth from $152 billion in 2023 to $342 billion by 2028.
v. Innovative Products: The company is set to launch several AI-driven products, including Cortex AI, Document AI, and Snowflake Copilot, which are expected to enhance customer retention and attract new clients.
Fallon Jacobson – Reprinted with permission of Whatfinger News
