Snowflake Shares Pop More Than 15% After Blowing Past Q3 Estimates

Cloud-based data warehousing specialist Snowflake NYSE: SNOW rebounded sharply Thursday following better-than-expected third-quarter results. 

Shares were trading at $354.88 late in Thursday’s session, up more than 15%. 

The company reported a loss of $0.51 per share, narrower than the expected loss of $0.60 per share. It also came in ahead of last year’s loss of $1.01 per share. Revenue was $334.4 million, ahead of views, which called for sales of $305.6 million. It marked a year-over-year increase of 110%. 

Shares tumbled 8.57% in Wednesday’s session, as the broader market also skidded on renewed Covid concerns, as well as news that the Federal Reserve may taper off government bond purchases “perhaps a few months sooner” than Wall Street expected. 

Snowflake popped 11% in after-hours trade, on the heels of the earnings announcement. 

The stock’s earnings-driven uptick Wednesday outpaced that of the broader market. The S&P was up 1.17% mid-session. 

In addition to the earnings and revenue, other highlights included:

• 5,416 total customers
• Net revenue retention rate of 173%
• 148 customers with trailing 12-month product revenue greater than $1 million

“Snowflake saw momentum accelerate in Q3, with product revenue growing 110% year-on-year to $312.5 million. Continued international expansion during the quarter resulted in product revenue from the EMEA and APJ regions up 174% and 219% year-on-year, respectively,” said chairman and CEO Frank Slootman in the earnings press release. “Our vertical industry focus is an important evolution of our selling motion and Snowflake continues to see broad industry adoption.”

Raised Fourth-Quarter Guidance

The company also gave fourth-quarter product revenue guidance in a range of $345 million to $350 million, ahead of analyst estimates of $315.9 million. If the company hits that guidance, it would be a year-over-year increase of 94% to 96%.

The company has yet to turn a profit, but it’s grown revenue at triple-digit rates in each of the past eight quarters. 

Snowflake went public in September 2020 at $120, and before the end of the year rocketed to $429. It was the largest software company IPO at the time, raising a whopping $3.4 billion. 

According to MarketBeat data, analysts have a “buy” rating on the stock with a price target of $356.47, a fractional upside. 

On Thursday, following the earnings report, nine analysts boosted their price target or upgraded their rating on the stock. 

Improving Cloud-Based Workflows

Even before going public, Snowflake has been carving out a distinct niche, one that the analysts are clearly embracing. As enterprises increasingly turn to cloud-based storage and applications, they have to be cognizant of costs and performance accuracy, among other concerns. For example, a cloud-based system must be accessible from numerous locations simultaneously, particularly in a world of more remote work. 

Snowflake has addressed those concerns and also has developed a system that’s operable on various public clouds. That allows more flexibility and ease of use.

At this time, Snowflake remains essentially a “story” stock, as there’s still no earnings track record. However, the potential indicated by outstanding revenue growth and product development is attracting investment. The number of mutual funds owning shares rose in each of the past three quarters, from 784 to 1174. 

The stock underwent a lengthy correction beginning a year ago. It’s not unusual for a newly public company to correct after its initial post-IPO rally. However, that correction means the stock has only notched a one-year return of 1.75% and a year-to-date return of 10.52%. 

It’s somewhat precarious to attempt a buy at this juncture, as the market is in a correction and there appears to be a fresh bout of uncertainty regarding Covid, inflation, and Fed actions. 

However, Snowflake is absolutely a stock to watch. A long-term trend line indicates a potential early buy point around $370, which may be viable if the broad market goes into a definitive uptrend.