Snowflake plunges as analysts cut PTs, question business model on slowing growth

May 26, 2022

Snowflake corporate headquarters in Silicon Valley

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Snowflake (NYSE:SNOW ) shares plunged on Thursday after the data warehousing company reported first-quarter results that missed expectations, prompting some analysts to lower their price targets and even question the business model.

Stifel analyst Brad Reback lowered his per-share price target on Snowflake to $120 from $240, a 50% cut, noting that while the first-quarter "modestly exceeded expectations," calling out the more than 40% free cash flow margin, a challenging environment is resulting in lower usage.

"[W]e note the marginal revenue beat fell short of expectations as management highlighted some customers are consuming less than originally anticipated amidst a more challenging operating environment and shifting economic landscape," Reback wrote in a note to clients, adding that companies are moving to "optimize" cloud spending as a result of slowing businesses.

Snowflake (SNOW) shares fell nearly 12.5% to $116.30 in premarket trading on Thursday.

For the quarter ended April 30, Snowflake (SNOW) lost 53 cents a share, on revenue of $422.4 million. Wall Street analysts expected the company to lose 51 cents a share on $413 million in sales.

The Frank Boozeman-led Snowflake (SNOW) said revenue from products rose 84% year-over-year to $394.4 million.

Looking ahead, Snowflake (SNOW) expects its second-quarter product revenue to be between $435 million and $440 million, up 71%-73% year-over-year, with product revenue for its full fiscal year to be in a range of $1.89 billion to $1.9 billion, up between 65% and 67% year-over-year

The StreetAccount consensus was for Q2 product revenue growth of 72%, CNBC reported. For FY22 the consensus was for growth of 66%. The Q2 product revenue growth would be the lowest since Snowflake became a public company, Bloomberg reported.

On Tuesday, Rosenblatt analyst Blair Abernethy raised his rating on Snowflake's (SNOW) stock and said the shares could see strong gains this year.

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