SNOW melts higher after impressive Q3 report

Snowflake (SNOW) delivered a strong performance in its Q3 earnings, posting a solid beat on both the top and bottom lines. Adjusted EPS came in at $0.20, exceeding the consensus estimate of $0.15, while revenue rose 28% year-over-year (YoY) to $942.1 million, surpassing analyst expectations of $898.6 million. The standout metric was product revenue, which grew 29% YoY to $900.3 million, well ahead of the $856.6 million consensus. Following the release, Snowflake shares rallied by over 14% in after-hours trading, underscoring investor enthusiasm.

One of the key highlights of the report was Snowflake’s current remaining performance obligation (cRPO), which grew by an impressive 55% YoY to $5.7 billion, easily outpacing the $5.22 billion estimate. This reflects the strength of Snowflake’s long-term contractual agreements and highlights robust demand for its platform. However, the net revenue retention rate declined to 127% from 135% YoY, a metric investors are likely to monitor closely as it reflects growth from existing customers.

Snowflake also provided strong guidance for Q4, forecasting product revenue between $906 million and $911 million, surpassing the consensus estimate of $890.7 million. For the full fiscal year, the company raised its product revenue guidance to $3.43 billion, up from a prior estimate of $3.36 billion, signaling confidence in its continued momentum. Additionally, Snowflake improved its FY adjusted operating margin forecast to 4%, up from the previous 3%, showcasing enhanced operational efficiency.

During the quarter, Snowflake continued to expand its customer base, now counting 542 customers with trailing 12-month product revenue over $1 million, up 25% YoY. It also added significant enterprise clients, with 754 Forbes Global 2000 customers, representing 8% YoY growth. This highlights Snowflake’s traction among large organizations as it cements its position as a leader in the enterprise data platform market.

The company’s gross margins remained solid, with adjusted gross margin at 73%, slightly lower than the 75% recorded in the same period last year but ahead of the 71.8% analyst estimate. This demonstrates the company’s ability to maintain profitability while scaling its operations. The acquisition of Datavolo, an open data integration platform, was another notable announcement, aimed at enhancing Snowflake’s capabilities in the data integration space and further strengthening its value proposition.

CEO Sridhar Ramaswamy emphasized the company’s focus on product cohesion and ease of use, which he credited for winning new customers and displacing competitors. Snowflake’s platformization strategy and its continued investments in innovation, particularly in its AI and machine learning offerings, are expected to drive future growth. The company also highlighted the expanding adoption of its core products like Snowpark, which simplifies data processing within its platform.

Shares of SNOW ripped higher following the news. The stock is trading at $151 ahead of its conference call. This represents asix month high but we would warn chasers that there is some resistance here with the 50-weekly moving average parked at $151. This may lead to some profit taking following an impressive rally.

Looking ahead, Snowflake is poised to benefit from its robust remaining performance obligations, growing enterprise customer base, and increasing product adoption. The company’s ability to consistently exceed expectations on product revenue and provide conservative but upwardly revised guidance has bolstered investor confidence. However, the slight decline in net revenue retention and narrowing gross margins warrant close attention in subsequent quarters.

Overall, Snowflake’s Q3 results underscore its strength in navigating a competitive environment and its ability to capitalize on the growing demand for data analytics and cloud solutions. The market’s positive reaction reflects optimism about the company’s long-term growth trajectory, supported by its strategic initiatives and expanding customer relationships. Investors will now look to Q4 results and beyond for further confirmation of Snowflake’s ability to sustain its strong performance.