Why Snowflake Stock Is Still a Buy After Earnings
Snowflake stock is surging Thursday after cloud company beat expectations for its third quarter and raised its full-year outlook. Here's what you need to know.
Snowflake (SNOW) stock surged out of the gate Thursday, last seen more than 30% higher, after the data cloud company beat top- and bottom-line expectations for its fiscal 2025 third quarter and raised its full-year outlook.
In the three months ended October 31, Snowflake's revenue increased 28.3% year over year to $942.1 million, thanks to a 29% spike in product revenue to $900.3 million. Its earnings per share (EPS) declined 20% from the year-ago period to 20 cents.
"Snowflake delivered a strong third quarter," thanks to impressive product revenue growth "and remaining performance obligations of $5.7 billion, with year-over-year growth accelerating to 55%," said Snowflake CEO Sridhar Ramaswamy in a statement. "Our obsessive drive to produce product cohesion and ease of use has built Snowflake into the easiest and most cost-effective enterprise data platform. That is what's leading us to win new logo after new logo, expand within our customer base, and displace our competition over and over again."
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The results easily beat analysts' expectations. Wall Street was anticipating revenue of $897 million and earnings of 15 cents per share, according to CNBC.
As a result of its strong performance in the first nine months of the year, Snowflake raised its full-year outlook. The company now expects to achieve product revenue of approximately $3.43 billion, representing year over year growth of about 29%. This is up up from its previous forecast of $3.356 billion.
It also is guiding for a product gross profit margin of 76% vs the prior outlook of 75%, and an operating income margin of 5%, up from 3%. Its adjusted free cash flow margin forecast of 26% remain unchanged.
For its fiscal fourth quarter, Snowflake said it anticipates product revenue in the range of $906 million to $911 million and an operating income margin of approximately 4%.
Is Snowflake stock a buy, sell or hold?
Snowflake stock has struggled throughout most of 2024, but Thursday's post-earnings pop has the tech stock back in positive territory for the year to date. And Wall Street thinks there's more room to run.
According to S&P Global Market Intelligence, the average analyst target price for SNOW is $178.24, representing implied upside of nearly 40% to the large-cap stock's November 20 close. Meanwhile, the consensus recommendation is a Buy.
"We rate Snowflake shares a Buy. We believe that the company possesses a unique technology advantage that will give them a dominant competitive position in the data cloud in both the short and long term," says Truist Securities analyst Joel Fishbein Jr. "Though shares are not cheap at current levels, we believe that current valuation is fair on a growth-adjusted basis and that the tailwinds for growth are stronger than market expectations which offer further upside going forward."
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