Why Snowflake Stock Is Sinking After a Q2 Earnings Beat
Snowflake stock is lower Thursday even as the tech company disclosed a Q2 earnings beat and raised a key sales forecast. Here's what you need to know.
Snowflake (SNOW) stock is spiraling in Thursday's session even after the data cloud company beat top- and bottom-line expectations for its second quarter and raised its full-year product revenue forecast.
In the three months ended July 31, Snowflake's revenue increased 28.9% year-over-year to $868.8 million, thanks in part to a 30% surge in product revenue growth to $829.3 million. Its earnings per share (EPS) declined 18.2% from the year-ago period to 18 cents.
"Snowflake delivered another strong quarter, surpassing the high end of our Q2 product revenue guidance and, as a result, we're raising our product revenue guidance for the year," said Snowflake CEO Sridhar Ramaswamy in a statement. "The quarter was hallmarked by innovation and product delivery, and great traction in the early stages of our new artificial intelligence (AI) products."
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The results easily beat analysts' expectations. Wall Street was anticipating revenue of $851.3 million and earnings of 16 cents per share, according to Yahoo Finance.
As its CEO mentioned, Snowflake raised its product revenue guidance for the full year due to its strong performance in the second quarter. It now anticipates product revenue of approximately $3.356 billion in fiscal 2025, representing year-over-year growth of about 26%. This compares to its previous forecast of about $3.3 billion.
The company added that it continues to anticipate a product gross profit margin of 75%, an operating income margin of 3%, and an adjusted free cash flow margin of 26%.
For the third quarter, Snowflake said it anticipates product revenue in the range of $850 million to $855 million.
Analysts are anticipating product revenue of $851 million for its third quarter, according to Investor's Business Daily.
"With the combination of our platform, the network effect of collaboration and our AI innovations, we have a huge opportunity ahead to deliver even greater value to our customers," Ramaswamy said.
Lastly, Snowflake authorized an additional $2.5 billion in stock repurchases and extended the expiration of its repurchase program to March 2027. As of July 31, $491.9 million remained for repurchase under its previous $2 billion authorization. Stock buybacks can help boost the share price.
Despite all the positives, William Blair analyst Jason Ader says Wall Street could be worried that management maintained its Q3 and full-year operating margin guidance of 3% amid higher commissions and R&D costs.
Is Snowflake stock a buy, sell or hold?
Snowflake has performed poorly on the price charts in 2024, down 40% for the year to date. And while Berkshire Hathaway (BRK.B) threw in the towel on SNOW – it was one of the stocks Warren Buffett sold in Q2 – Wall Street remains bullish on the tech stock.
According to S&P Global Market Intelligence, the average analyst target price for SNOW stock is $172.86, representing implied upside of more than 45% to current levels. Meanwhile, the consensus recommendation is a Buy.
Financial services firm Oppenheimer is one of the more bullish outfits on SNOW stock with an Outperform rating (equivalent to a Buy) and a $180 price target.
There are several positives building for Snowflake that can drive improved growth its upcoming fiscal year, including improving execution and closing rates and leadership in serving analytical workloads and use cases, says Oppenheimer analyst Ittai Kidron.
However, the analyst notes that third-quarter product guidance was just in line with estimates and "investor concerns about competition and the company's execution in AI are likely to persist."
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