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Snowflake: Losses in Q4, Underlying Metrics Remain Strong
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Snowflake: Losses in Q4, Underlying Metrics Remain Strong

Shares of Snowflake (NYSE: SNOW) continued their downward spiral on Thursday as the stock tanked 15.4%, following the company’s disappointing Q4 results.

While Wall Street analysts were expecting SNOW to report earnings of $0.02 per share in Q4, the data cloud company posted a loss of $0.43 per share. In the same period a year back, SNOW had reported a loss of $0.70 per share.

However, the company’s total revenues generated during Q4 jumped 101% year-over-year to $383.8 million, surpassing the consensus estimate of $372.7 million.

Frank Slootman, chairman and CEO of Snowflake, commented, “Snowflake finished fiscal 2022 with record-breaking consumption and bookings results, including triple-digit product revenue growth. Remaining performance obligations were $2.6 billion, representing year-on-year growth of 99%. Our net revenue retention rate reached 178% driven by continued growth from our largest customers.”

Moreover, the company also announced the acquisition of Streamlit, an open-source framework built to simplify and accelerate the creation of data applications for an undisclosed amount.

Through this strategic acquisition, the two companies aim to discover the unrealized potential of data and develop beautiful applications easily.

Streamlit has been downloaded over 8 million times and around 1.5 million applications have been built using Streamlit’s framework.

Even Rosenblatt Securities analyst Blair Abernethy approved of this acquisition and believed it was “an excellent strategic fit” for Snowflake, as Streamlit’s data framework, once available on the company’s platform, would “help drive data application proliferation which drives platform consumption.”

It was Snowflake’s 2023 outlook that disappointed analysts. For FY 2023, SNOW has projected its product revenues to range between $1.88 billion and $1.9 billion, a year-over-year growth range between 65% and 67%.

This outlook assumes a headwind of $97 million as the company plans to roll out platform enhancements within its cloud deployment. The company’s technology platform that powers its Data Cloud ecosystem enables customers to consolidate data for gaining business insights, share this data and build data-driven applications.

The revenue headwinds resulted in Abernethy lowering his FY 2023 revenue growth estimate from 69% to 66%.

However, the analyst continues to expect Snowflake to rapidly scale up over the medium term, with rising margins as “consumption levels outstrip expense growth.” The demand for SNOW’s platform remains strong as indicated in the company’s Q4 results.

In Q4, SNOW’s net revenue retention rate reached 178%, which included 15 new customers with a trailing 12-month product revenue of $1 million.

Abernethy is still positive about Snowflake’s growth story as the underlying metrics remain strong. Moreover, with zero debt and $5.1 billion in cash on hand, the analyst thinks that SNOW has the capital to “fund its growth, for tuck-in acquisitions, and to fund Snowflake Ventures.”

However, the analyst still remained sidelined on the stock with a Hold rating and lowered the price target from $380 to $325 “chiefly due to multiple compression among the Company’s peer group.” Abernethy’s price target still indicates an upside potential of 51.5% for the stock over the next 12 months.

Other Wall Street analysts are cautiously optimistic about the stock with a Moderate Buy consensus rating based on 14 Buys and six Holds. The average SNOW stock prediction is $331.21, which implies upside potential of approximately 54.6% from current levels for this stock.

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