ii view: data analyser Snowflake sees demand melt away

Helping companies make more sense of their customer data, shares for this tech giant have more than halved in 2022. Buy, sell, or hold?

Third-quarter results to 31 October  

• Revenue up 67% $557 million
• Adjusted Earnings Per Share (EPS) of $0.11, up from $0.03

Chief executive Frank Slootman said:

“Snowflake’s Data Cloud maximizes the power and promise of data science and artificial intelligence, a high priority in the modern enterprise.”

ii round-up:

US data cloud specialist Snowflake Inc Ordinary Shares - Class A (NYSE:SNOW) detailed quarterly earnings which beat Wall Street hopes but offered weaker than expected next quarter sales guidance as client demand slowed.

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Earnings of $0.11 per share beat analyst forecasts for $0.05 per share, but product sales growth year-over-year slowed to 67% in this latest third quarter from 83% in the prior second quarter. Management’s estimate for fourth quarter product sales of between $535 million to $540 million fell short of analyst hopes nearer to $555 million. 

Snowflake shares fell by around 6% in after-hours US trading having already more than halved year-to-date coming into this latest announcement. Shares for software giant Microsoft Corp (NASDAQ:MSFT) are down around a quarter in 2022, similar to the tech heavy Nasdaq Composite index.

Snowflake helps its customers unite and analyse their data from servers across the global cloud data network. Snowflake customers include Sainsbury (J) (LSE:SBRY) subsidiary Argos, The Kraft Heinz Co (NASDAQ:KHC), JetBlue Airways Corp (NASDAQ:JBLU) and AT&T Inc (NYSE:T). Marketing query times at Argos have fallen from six hours to three seconds using its product. 

Snowflake corporate customers rose to around 7,300 from 5,400 in the third quarter of 2021. More than 500 of the Forbes Global 2000 list now use Snowflake’s products and services. 

Snowflake currently forecasts annual revenues of up to $1.92 billion or year-over-year growth of 69%. That’s marginally down from annual growth of 68% forecast in the prior second quarter. 

ii view:

Founded by Benoit Dageville, Thierry Cruanes and Marcin Żukowski, today Snowflake employs more than 4,000 people across 20 countries. It came to the US stock market at a price of $120 per share back in September 2020. Warren Buffett's Berkshire Hathaway Inc Class B (NYSE:BRK.B) previously flagged an investment interest in Snowflake.

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For investors, high economic outlook uncertainty cannot be overlooked, with its customers all facing rising costs in the face of elevated inflation. As with high growth companies generally, the correct valuation remains under debate, while the group’s activities are sure to have been noticed by tech titans such as Google owner Alphabet Inc Class A (NASDAQ:GOOGL). 

More favourably, customer numbers and revenues are still growing, if at a slower pace than before. The valuation is now cheaper than at the start of the year given the downturn in the share price, while long-term growth demand looks likely to continue despite near term volatility. 

On balance, and while room for some caution persists, an analyst consensus estimate of fair value at over $200 per share implies grounds for patience. 

Positives: 

• Growing customer numbers
• Increasing use of data

Negatives:

• Uncertain economic outlook
• No dividend payment

The average rating of stock market analysts:

Buy