Snowflake Slashes Earnings Forecast Due To 'unsettled Demand,' Stock Falls

Snowflake Inc. experienced a significant decline of nearly 13% in after-hours trading on Wednesday, following the release of its latest results and a downward revision of its full-year outlook. While the company exceeded expectations in its performance, it reduced its expectations for product revenue growth.

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In terms of the full fiscal year, Snowflake now anticipates $2.6 billion in product revenue, representing a growth rate of 34%. This revised outlook is lower than the previous projection of $2.705 billion, which would have indicated a growth rate of 40%.

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During the earnings call, Chief Executive Frank Slootman acknowledged that Snowflake is operating in an unsettled demand environment, which has been reflected in consumption patterns across the industry. He explained that despite the high level of enthusiasm for Snowflake, enterprises are currently focused on cost management due to their own uncertainties.

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Chief Financial Officer Frank Scarpelli added that Snowflake has experienced headwinds in bookings globally, except for its North American large enterprise segment. This trend is not due to competitive pressures but rather reflects customers' hesitancy to commit to large multi year deals.

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In the fiscal first quarter, Snowflake reported a net loss of $226 million, or 70 cents per share, compared to a loss of $166 million, or 53 cents per share, in the same period last year. On an adjusted basis, the company's earnings per share increased to 15 cents from 8 cents a year ago, surpassing the 5 cents projected by analysts.

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Snowflake's revenue rose to $624 million from $422 million, outperforming analysts' expectations of $609 million. Product revenue amounted to $590 million, exceeding the anticipated $572 million. However, the net revenue retention rate declined to 151% in the quarter compared to 158% in the previous fiscal fourth quarter.

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Despite the challenges in consumption highlighted by Slootman, he also noted that Snowflake is experiencing momentum in the current artificial intelligence landscape. He emphasized that Snowflake's capabilities, continuous performance improvements, and efficiency enhancements enable workloads in machine learning, data science, and AI.

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For the fiscal second quarter, Snowflake's management expects product revenue in the range of $620 million to $625 million, which falls short of the FactSet consensus estimate of $647 million.

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