Snowflake falls 9% after earnings miss expectations

Snowflake (SNOW) delivered strong second-quarter results, beating both revenue and adjusted earnings expectations. The company reported revenue of $868.8 million, a 29% year-over-year increase, which surpassed the consensus estimate of $851.3 million. Adjusted earnings per share (EPS) came in at $0.18, also exceeding the expected $0.16. However, the company’s net loss widened to $317.77 million, or $0.95 per share, compared to the same quarter last year, reflecting rising costs.

The larger than expected loss weighed on shares as the stock slides 9% in after hours. Shares of SNOW did rally 25% since the August 5 lows, so there is certainly some profit taking after the report failed to impress.

Key metrics from the quarter further highlight Snowflake's performance. Product revenue was a standout, reaching $829.3 million, a 30% increase year-over-year, and above the estimate of $812.6 million. The company’s remaining performance obligations (RPO) grew significantly by 48% year-over-year to $5.2 billion, indicating strong future revenue potential. Snowflake also reported a net revenue retention rate of 127%, maintaining a high level of customer engagement and expansion.

Snowflake's customer base continues to grow, with 510 customers generating over $1 million in product revenue over the trailing 12 months, up 28% from the previous year. The company also counts 736 Forbes Global 2000 customers, representing a 5% year-over-year increase. These metrics underscore Snowflake’s continued success in expanding its reach among large enterprises.

In terms of guidance, Snowflake raised its full-year product revenue outlook to $3.356 billion, up from the previous guidance of $3.3 billion and slightly above the consensus estimate of $3.31 billion. For the third quarter, the company expects product revenue between $850 million and $855 million, which aligns closely with analyst expectations. Despite the positive guidance, investors reacted cautiously, with shares dropping about 7% in extended trading.

The company’s CEO, Sridhar Ramaswamy, emphasized the strong momentum in innovation and product delivery, particularly in the early stages of Snowflake’s AI initiatives. Ramaswamy highlighted the significant opportunities that lie ahead for Snowflake, driven by its platform capabilities, collaborative network effects, and advancements in AI. This focus on AI is crucial as Snowflake faces increasing competition from companies like Databricks, which are also pushing aggressively into AI-related products.

Despite the positive earnings and raised guidance, Snowflake's stock has faced pressure, partly due to concerns over competition and the broader market environment for tech stocks. The company's shares have declined by 33% in 2024, reflecting investor apprehensions about its growth prospects in the face of stiff competition and the challenges of expanding its AI capabilities.