Interactive Investor

ii view: data firm Snowflake flags its importance in AI

Helping companies make more sense of their customer data, shares for this tech company are down around a quarter over the last year. Buy, sell, or hold?

25th August 2023 12:25

by Keith Bowman from interactive investor

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Second-quarter results to 31 July  

  • Revenue up 36% $674 million
  • Adjusted Earnings Per Share (EPS) of $0.22, up from $0.01

Chief executive Frank Slootman said: “Snowflake as the global epicentre of trusted enterprise data is well positioned to enable the growing interest in AI/ML (artificial intelligence/machine learning). Enterprises and institutions alike are increasingly aware they cannot have an AI strategy without a data strategy.”

ii round-up:

Data cloud specialist Snowflake (NYSE:SNOW) detailed expected forward sales in line with Wall Street hopes as it underlined the need for its customers to have a data policy before establishing an AI strategy.   

Second-quarter sales and earnings beat analyst forecasts as corporations looked to move on from reducing costs to enhancing their data-processing abilities. Second-quarter revenues climbed 36% to $674 million, pushing adjusted earnings per share up to $0.22 from a year ago quarter’s $0.01 and beating forecasts nearer to $0.10. 

Shares for Snowflake, which helps customers to unite and analyse their data from servers across the globe, initially rose around 3% following the results. Snowflake shares came into this latest news down by a quarter over the last year, underperforming approximate 12% gains for actual cloud data server providers Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL), and way below AI specialist microchip provider NVIDIA Corp (NASDAQ:NVDA) with a gain of 163%. 

Snowflake customers include Sainsbury (LSE:SBRY) subsidiary Argos, The Kraft Heinz Co (NASDAQ:KHC), Exxon Mobil Corp (NYSE:XOM) and AT&T (NYSE:T). Marketing query times at Argos have fallen from six hours to three seconds using its product.

Full-year 2023 revenues are expected by management to come in at $2.6 billion, up 36% year-over-year although down from annual growth of 70% reported at the end of 2022. 

Broker Morgan Stanley reiterated its ‘overweight’ stance on the shares after the results, viewing them as a stabilisation in performance but with a recovery now awaited. 

ii view:

Founded by Benoit Dageville, Thierry Cruanes and Marcin Żukowski in 2012, today Snowflake customers number more than 8,500. More than 600 of the Forbes Global 2000 list now use Snowflake’s products and services. Warren Buffet-run Berkshire Hathaway Inc Class B (NYSE:BRK.B) previously flagged an investment interest in Snowflake.

For investors, the more challenging economic backdrop for the firm's customers continues with interest rates potentially still going higher. 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. 

On the upside, customer numbers and revenues are still growing, if at a slower pace than previously. The group’s products, according to management, should help it benefit from corporations push towards generative AI, while a potential near-term peak in US interest rates may subsequently help to boost customer spending.   

In all, and while room for caution persists, an analyst consensus estimate of fair value sat at around $200 per share looks to offer grounds for continued longer-term optimism. 

Positives: 

  • Growing customer numbers
  • Increasing use of data

Negatives:

  • Uncertain economic outlook
  • No dividend payment

The average rating of stock market analysts:

Buy

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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