'Near-Term Pain For Long-Term Gain': 4 Snowflake Analysts React To Mixed Earnings Report

Snowflake Inc (NYSE: SNOW) shares traded lower by 17% on Thursday after the company reported slowing revenue growth in the fourth quarter.

On Wednesday afternoon, Snowflake reported an adjusted fourth-quarter EPS loss of 43 cents, missing consensus analyst estimates of a 2-cent profit. Revenue for the quarter was $383.8 million, beating analyst estimates of $372.7 million. Revenue was up 101% from a year ago.

Snowflake reported nearly 6,000 customers as of the end of the quarter.

Adjusted gross margin of 70% was up from 62% a year ago but slightly below analyst expectations of 70.9%. Product revenue was up 102%.

Looking ahead to fiscal 2023, Snowflake management guided for product revenue growth to slow to between 65% and 67%.

Related Link: 5 Block Analysts Praise Q4 Earnings Beat, Cash App Outlook

Monetization Hit: Piper Sandler analyst Brent Bracelin said Snowflake's good but not great growth outlook overshadowed its improving profit trends.

"We remain buyers as we continue to see the potential for SNOW to generate outsized growth, while early proof points indicate FCF leverage could be higher and come faster than investors appreciate," Bracelin wrote.

Morgan Stanley analyst Keith Weiss said Snowflake investors are enduring "near-term pain for long-term gain."

"By improving price performance for the end customer, SNOW takes a hit on near-term monetization, but should yield a higher volume of workloads moving to the platform and more durable growth longer-term," Weiss wrote.

Buy The Dip? Rosenblatt Securities analyst Blair Abernethy said Snowflake still has an impressive long-term growth trajectory, but investors should be patient for a better entry point.

"It’s FY23 outlook … is being impacted by a near-term $97m headwind resulting from recently introduced platform enhancements that, while improving efficiency and attractiveness of the platform for customers, results in lower consumption levels," Abernethy wrote.

JPM analyst Patrick Walravens said investors should be buying the dip in Snowflake.

"The company’s consumption model passes the benefits of platform enhancements to its customers, and while this dynamic impacts revenue at times, investors should understand that, as [Snowflake CEO Frank] Slootman pointed out, 'This is not philanthropy, it stimulates demand,'" Walravens wrote.

Ratings And Price Targets:

• Morgan Stanley has an Overweight rating and a $355 target.
• Rosenblatt Securities has a Neutral rating and a $325 target.
• JMP has an Outperform rating and a $385 target.
• Piper Sandler has an Overweight rating and a $300 target.

Photo by Graham Mansfield on Unsplash