Snowflake reported third-quarter earnings that met expectations while revenue topped Wall Street targets. The enterprise software maker's product revenue guidance came in below expectations. SNOW stock initially tumbled, then reversed up, as investors focused on an improved outlook for free cash flow.
"A major incremental positive was the rapidly improving FCF story at Snowflake," said Morgan Stanley analyst Keith Weiss in a report. "For fiscal 2024, management expects 23% FCF margins – just 200 basis points shy of its 25% long-term target."
The company reported third quarter earnings after the market close on Wednesday. For full-year fiscal 2024, which starts with the April 2023 quarter, Snowflake said it expects product revenue growth of 47%, below consensus estimates of 52%.
Because Snowflake's business model is consumption-based rather than subscription-based, bearish investors have raised concerns over a possible U.S. recession curbing demand. Snowflake revenue is tied to how much data its customers crunch and store on cloud computing platforms.
For the quarter ending Oct. 31, Snowflake said it lost 63 cents per share versus a 51-cent loss a year earlier. Analysts polled by FactSet expected Snowflake to report a loss of 63 cents a share.
The company reports results using generally accepted accounting principles, or GAAP. Snowflake does not break out adjusted earnings in its releases.
Third-quarter revenue climbed 67% to $557 million, the software maker said. Analysts had predicted revenue of $539.4 million.
SNOW Stock: Revenue Outlook Misses
The Snowflake earnings report also said product revenue rose 67% to $522.8 million vs. estimates of $505.2 million.
At UBS, analyst Karl Keirstead said in a report: " To be clear, 67% revenue growth in Q3 and the guide for 47% growth in fiscal 2024 is very impressive in this macro (economy) and certainly doesn't speak to anything 'broken' with Snowflake. That said, investor expectations were running high into this print."
For the current quarter ending in January, Snowflake expects product revenue of $537.5 million at the midpoint of its outlook. Analysts had expected $549.2 million.
SNOW stock initially fell on the earnings release. But Snowflake stock reversed up 7.8% to close at 154.04 on the stock market today.
Snowflake stock was down 57% for 2022 heading into the earnings report.
Snowflake sells data analytics and management tools that run on cloud-computing platforms such as Amazon Web Services, part of Amazon.com.
Amid the bear market in software growth stocks, the software stock has a Relative Strength Rating of 17 out of a best-possible 99, according to IBD Stock Checkup.
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