Software company Snowflake (NYSE: SNOW) is currently trading down over 22% in pre-market trading. While, unfortunately, this type of news is far from unusual lately, we took a look at exactly what’s causing this stock to tumble so rapidly.
Let’s get into it.
What does Snowflake do?
Snowflake is a cloud-computing company offering software as a service (SaaS). It enables quick and user-friendly data storage, processing, and analytics without the need for external hardware from the company. Its ease of use allows its enterprise clients to rapidly consolidate data and develop meaningful business insights quicker than many other platforms allow.
Why is Snowflake stock down?
Unsurprisingly, the answer comes down to earnings. Snowflake announced its Q4 earnings yesterday after market close, and shareholders were disappointed, to say the least. The company reported a loss per share of $0.43, on revenue of $383.8 million. While revenue topped estimates of $373 million, analysts were expecting the firm to post earnings per share (EPS) of $0.03 — a massive underperformance.
Even the revenue beat was slightly tarnished by the fact that the 101% year-over-year (YoY) growth reported had slowed from the 110% growth announced in the previous quarter. This marks the company’s slowest revenue growth for a quarter since 2019.
Outlooks for the coming quarter largely fell in line with expectations. Revenue of between $383 million and $388 million is expected, with analyst estimates coming in at $382 million.
Is Snowflake stock a buy?
Snowflake is a very intriguing company. Investors are undoubtedly spooked by slowing growth and a huge earnings underperformance, but these figures shouldn’t be all we consider when analyzing this company. Snowflake is still a relatively young software company — it only went public in September 2020. Since then, it has largely existed in extraordinary times for the market. Volatility has rarely calmed down, and investors are increasingly looking for security away from growing tech stocks.
If we look at metrics outside of the strict financials, we potentially see a different story for the firm. Customers rose from 4,139 to 5,944 within the year, with 184 of those companies spending over $1 million annually. Net revenue retention rate was reported at 178%, showing that Snowflake possesses an inherent stickiness that will bode well for future revenue.
The company certainly has a lot of work to do to spark growth, but if global headwinds can ease it could be primed to continue its march towards profitability. Considering the market situation right now, Snowflake is far from a safe or defensive stock, but its earnings report-induced sell-off speaks more to investor panic than any major underlying issues.
Financial Writer at MyWallSt
Pádraig’s favorite stock is Nike. Growing up as a sports fanatic, seeing Nike collaborate with athletes like Jordan, Lebron, and Ronaldo inspired him and cemented the brand in his mind. Now, despite having failed miserably in his attempts to earn a fabled Nike sponsorship, he still believes in the innovation and creativity behind Nike and is convinced they will only grow stronger as the world's leading sports brand.