Snowflake’s Recent Earnings and Investor Reaction

Snowflake announced its earnings this week, demonstrating substantial growth with revenue exceeding double its year-over-year figures.

Revenue Growth and Stock Performance

Despite a 117% increase in fourth-quarter revenue, reaching $190.5 million, investors reacted negatively, causing a decline in the company’s stock price following Wednesday’s report.

This mirrored a similar response seen with Salesforce last week after their positive earnings announcement. Snowflake’s stock experienced a roughly 4% decrease today, representing a recovery from its midday low of nearly a 12% drop.

The Focus on Future Performance

The declines appear to stem from Wall Street prioritizing a company’s future prospects over recent achievements. Snowflake’s guidance for the current quarter, projecting revenue between $195 million and $200 million, aligned with analyst expectations.

However, merely meeting these expectations proved insufficient for some investors, who seemingly demand exceeding projections for a positive assessment. It remains unclear why achieving expectations is viewed less favorably than falling short.

Losses and Market Trends

The reported losses of $200 million, more than double the previous year’s figure, may have also contributed to investor concerns. While past losses have been tolerated, this increased amount potentially triggered a negative reaction.

It’s important to acknowledge the broader downturn in tech stocks experienced in 2021. As reported by Alex Wilhelm, this trend intensified this week, with the Nasdaq down 11.4% from its 52-week high. Snowflake’s performance may be a consequence of this wider market correction.

Snowflake’s Position and Cloud Advantages

CEO Frank Slootman’s Perspective

Snowflake CEO Frank Slootman highlighted the company’s strong position during the earnings call, emphasizing its ability to overcome the limitations of traditional on-premise infrastructure.

The inherent scalability of the cloud provides limitless resources, shifting the focus from managing capacity to managing consumption – a change that benefits Snowflake.

The Shift from Capacity to Consumption

“Historically, on-premise data centers required managing capacity. Now, that’s no longer the primary concern, but managing consumption is,” Slootman explained. “This is a new concept for many, and we’ve adapted to the notion of consumption, as it applies equally to infrastructure clouds.”

Customer Growth and Data Migration

Snowflake currently has a dozen customers spending $5 million or more on a trailing twelve-month basis, demonstrating significant customer value. Despite the growing adoption of cloud technologies, a relatively small percentage of overall enterprise workloads have been migrated, indicating substantial growth potential.

Executives also noted a considerable ramp-up period for customers as they transfer data to the Snowflake data lake before actively utilizing its services. This suggests continued revenue growth as customers increase their consumption over time.

The Law of Large Numbers

The slowing of Snowflake’s quarterly percentage growth is a natural consequence of its increasing size, as the law of large numbers begins to exert its influence.

While I won’t presume to advise Wall Street investors, a comprehensive view of Snowflake’s financial standing, the vast untapped potential of the cloud, and its unique billing approach suggests a positive long-term outlook, irrespective of short-term investor reactions.

Note: This article was updated to clarify that the $5 million customer spend is calculated on a trailing 12-month basis, not monthly.