Shares of cloud-based data analytics company, Snowflake (NYSE: SNOW) are trading 18% higher in pre-market today after it announced results for fiscal Q2 of 2023. Snowflake reported revenue of $497.2 million, compared to its estimates of $467.25 million in Q2. Its adjusted loss per share stood at $0.70 per share, compared to estimates of a loss of $0.01 per share.
In the year-ago quarter, Snowflake reported revenue of $272.19 million and a loss of $0.64 per share. Despite its massive earnings miss, investors were buoyed by Snowflake’s solid earnings growth in the quarter that ended in July.
The company’s product sales rose 83% year-over-year to $466 million, while its gross margin exceeded 75%, allowing Snowflake to generate an adjusted operating income and free cash flow.
Let’s see what impacted Snowflake sales in the July quarter and what investors should expect from the stock going forward.
What does Snowflake do?
Snowflake aims to harness the capabilities of the public cloud. It created the Data Cloud, which is a global network allowing enterprises to mobilize data with near-unlimited scale and performance. Here, clients can integrate their siloed data, discover and share governed data, and execute diverse analytic workloads.
Snowflake successfully delivers a seamless experience across public clouds, and its platform is the engine that powers and provides access to the Data Cloud. This path-breaking solution is used across verticals that include data warehousing, data lakes, data engineering, data science, and data sharing, among others.
Its suite of products and solutions has allowed Snowflake to improve sales from $96.6 million in fiscal 2019 to $1.21 billion in fiscal 2022. The company ended Q2 with remaining performance obligations (RPO) of $2.7 billion, an increase of 78% year-over-year. The RPO represents the amount of contracted future revenue that is yet to be recognized.
Snowflake’s net revenue retention rate stood at 171%, which suggests existing customers increased spending on the cloud platform by 71% in the last year.
Snowflake now has a base of 6,808 customers, and 246 of these customers have generated at least $1 million in product sales in the last 12 months.
What next for SNOW stock price and investors?
Despite the uptick in SNOW stock, its price is down over 55% from all-time highs. Snowflake is currently valued at a market cap of $50.73 billion and is forecast to increase sales by 66% to $2.05 billion in fiscal 2023 and by 50% to $3.04 billion in fiscal 2024.
We can see that SNOW stock is valued at 25x forward sales which is quite steep. Given its earnings forecast of $0.39 per share in fiscal 2024, it's trading at 475x forward earnings.
Another reason why Snowflake is gaining momentum in pre-market is the company estimates product revenue to range between $1.90 billion and $1.91 billion in fiscal 2023, up from its previous forecast of $1.88 billion and $1.9 billion.
Frank Slootman, Chairman and CEO, Snowflake, stated, “Snowflake’s next frontier of innovation is aimed at transforming how cloud applications are built, deployed, sold, and transacted. We look forward to executing against this growth opportunity.”
Snowflake needs to improve its profit margins in the future and move towards profitability. But Snowflake has enough liquidity and is armed with a cash balance of $5 billion and zero debt on its balance sheet.
Investors expect the growth stock to build a scalable business which will help it improve the bottom line and generate strong earnings over time.
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