Snowflake's second quarter revenue and earnings beat didn't assuage long term bearish views of the enterprise software maker. Snowflake stock tumbled amid the modest beat as guidance underwhelmed.
Meanwhile, Snowflake reported July quarter earnings after the market close on Wednesday.
"Q2 results showed some signs of consumption stabilization along with solid bookings, though with a slimmer revenue beat than likely required to catalyze the stock," said Deutsche Bank analyst Brad Zelnick in a report.
Snowflake said it earned 18 cents a share on an adjusted basis. Analysts polled by FactSet expected Snowflake to earn 16 cents per share.
Also, July-quarter revenue climbed 29% to $868 million, the software maker said. Analysts had predicted revenue of $852 million.
For the current quarter ending in October, Snowflake said it expects product revenue in a range of $850 million to $855 million. Meanwhile, analysts had expected $851 million.
At Oppenheimer, analyst Ittai Kidron said in a report: "Snowflake delivered solid product revenue growth behind stable demand and improving large customer consumption. That said, Q3 product revenue guidance was in line (implying 22% year-over-year growth), and investor concerns around competition and the company's ability to execute in artificial intelligence, are likely to remain in place. Looking ahead, we see factors (storage headwinds, higher investments) that can serve as an overhang on the shares."
SNOW Stock: Updated Guidance
Meanwhile, Snowflake announced a $2.5 billion share repurchase plan through March 2027.
On the stock market today, Snowflake stock plunged 14.7% to close at 115.21.
"Fiscal 2025 product revenue was raised by $56 million on the $22 million Q2 beat and now implies 26% year-over-year growth vs 24% prior," said Jefferies analyst Brent Thill in a report. "The raise this quarter was the highest magnitude raise in nearly three years. Similar to guidance from last quarter, the updated outlook doesn't assume material contribution from new product features other than Snowpark, although it does assume revenue headwinds related to performance improvements passed onto customers, as well as storage revenue headwinds in the second half of the fiscal year."
Snowflake sells data analytics and management tools that run on cloud-computing platforms such as Amazon Web Services, part of Amazon.com.
At William Blair, analyst Jason Ader said in a note: "Product revenue guidance for the third quarter and full year were above consensus by $1.8 million and $23.7 million, respectively. However, management only reiterated third-quarter and full-year non-GAAP operating margin guidance of 3%. (Management cited) higher commissions tied to recent sales incentive changes; higher R&D associated with new products; and incremental hiring in the second half. Full-year revenue guidance of 26% includes three percentage points of impact from Snowpark, in line with prior expectations."
Snowflake Stock Technical Ratings
Amid investor concern over stiff competition with Databricks and others, SNOW stock has retreated 33% in 2024. Also, analysts with a bearish view say Snowflake lags rivals in developing artificial intelligence-related products.
Further, Snowflake brought in a new chief executive earlier this year.
At Deutsche Bank, Zelnick said in a report: "We also note some encouraging early data points (in Q2) around new product adoption. The follow through to consumption revenue from newer features and AI investments remains the bigger question for investors, for which more tangible evidence is likely needed to alleviate concern that Snowflake is being negatively disrupted by fast paced innovation occurring up and
down the data/AI stack."
Alphabet's Mandiant cybersecurity unit has been working with Snowflake to remedy a recent hacking incident that impacted customers such as AT&T, Ticketmaster and Nieman Marcus.
Also, SNOW stock holds an IBD Relative Strength Rating of 12 out of a best-possible 99, according to IBD Stock Checkup.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on artificial intelligence, cybersecurity and cloud computing.
