Snowflake May Have Upside After a Big Drop in the Bear Market

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Snowflake

publishes results on Wednesday, giving investors a fresh look after after the company fell 67% since November in the tech bear market.

The cloud-based data warehousing software company is exactly the kind of stock that the market has come to shun – fast-growing, but with a lofty valuation and minimal profits.

Snowflake

(ticker: SNOW) went public in September 2020 at $120 a share, doubled on the first day of trading, and last fall briefly topped $400. On Tuesday, just ahead of the company’s April quarter earnings report, the stock has sagged another 6% amid a broad tech sell-off, to $130.63, nearly completing a round-trip back to the IPO price.

The price been cut in half since the company last reported earnings in early March. That report was not well received, due in part to softer-than-expected guidance. It was also partly a reflection of a policy change affecting the company’s unusual consumption-based revenue model, in which customers pay for the compute time they use, no more, no less.

As CEO Frank Slootman explained to Barron’s in an interview last quarter, Snowflake effectively made the service cheaper, reducing the increments of time it sells from hours to seconds, allowing customers to be more efficient. “This isn’t philanthropy,” he said, asserting that the change will boost demand. “When you make something cheaper, people buy more of it.”

For the April quarter, Snowflake sees product revenue of $383 million to $388 million, up between 79% and 81% from a year ago, about flat sequentially. The company expects operating margin in the quarter on a non-GAAP basis of negative 2%. Street consensus estimates call for total revenue of $412.8 million, and a non-GAAP profit of a penny a share.

For the full year, Snowflake’s current guidance calls for product revenue of $1.88 billion to $1.90 billion, up 65% to 67%, with operating margin of 1% and adjusted free-cash-flow margin of 15%.

On Tuesday, Rosenblatt Securities analyst Blair Abernethy made the bold call to upgrade Snowflake shares ahead of earnings, boosting his rating to Buy from Neutral, while trimming his target price to $255 from $325.

He says that the digital transformation trend, strong March quarter results from the public cloud players

Amazon

(AMZN),

Microsoft

(MSFT) and

Alphabet

(GOOGL), and the company’s strong net revenue retention trends bode well for the quarter. He’s projecting 81% product revenue growth, at the top of the company’s target range, with non-GAAP EPS of 4 cents.

Abernethy also says Snowflake could boost its full year guidance, “given the healthy IT spending environment and momentum in the shifting of workloads to the cloud.” 

We’ll find out Wednesday if he’s right.

Corrections & Amplifications

Rosenblatt Securities analyst Blair Abernethy raised his rating on Snowflake to Buy from Neutral. An earlier version of this article incorrectly referred to him as Blair Anthony.

Write to Eric J. Savitz at [email protected]