Snowflake Inc. (NYSE: SNOW), the cloud-based data analytics and storage provider, has once again captured the attention of investors with its latest earnings report for the third quarter of fiscal 2025. Released on November 20, 2024, the earnings exceeded market expectations, driven by robust product revenue growth, improved margins, and a promising partnership in artificial intelligence (AI).
These developments not only pushed the stock price upward but also strengthened Snowflake’s position in the highly competitive cloud computing industry.
Strong Q3 Earnings Performance
Snowflake reported adjusted earnings per share (EPS) of $0.20 for the October quarter, beating analysts’ predictions of $0.15. Revenue for the quarter surged by 28% year-over-year to $942.1 million, surpassing the estimated $900.3 million. This impressive performance was primarily attributed to product revenue, which grew by 29% year-over-year, reaching $900 million.
A significant highlight of the report was the company’s remaining performance obligations (RPO), a key metric representing the value of contracted revenue yet to be recognized. Snowflake reported RPO growth of 55%, reaching $5.7 billion, up from 48% growth in the previous quarter. This acceleration signals robust demand for Snowflake’s services, highlighting its ability to secure long-term customer contracts.
@Snowflake had a strong Q3, with product revenue coming in at $900M, up 29% year-over-year.
Our remaining performance obligations totaled $5.7 billion dollars, with year-over-year growth accelerating to 55%. Given our results this quarter, we are again increasing our product… pic.twitter.com/MmlMmLt7cY
— sridhar (@RamaswmySridhar) November 20, 2024
Another noteworthy metric was the stabilization of Snowflake’s net revenue retention rate at 127%, indicating consistent growth in customer spending on the platform. The non-GAAP product gross margin remained steady at 76%, reflecting Snowflake’s operational efficiency in scaling its services.
Key Developments Driving Snowflake’s Growth
One of the standout announcements in Snowflake’s earnings report was its new multi-year partnership with Anthropic, an AI model developer. This partnership enables Snowflake to integrate Anthropic’s latest AI model, Claude 3.5, within its Cortex AI platform. This move positions Snowflake as a critical enabler of enterprise AI adoption.
The company’s Cortex AI platform is already gaining traction, with over 1,000 deployed use cases across various industries. Snowflake’s CEO, Sridhar Ramaswamy, emphasized that AI is accelerating the transition from unstructured to structured data, and Snowflake’s tools are well-equipped to handle this shift.
Snowflake’s refined sales strategy has played a crucial role in its recent success. The company has focused on streamlining its sales teams and centralizing operations to eliminate inefficiencies. This approach has resulted in faster customer onboarding, increased adoption of new products, and competitive displacement of other market players.
Snowflake continues to expand its offerings, as demonstrated by the recent acquisition of Datavolo. This acquisition enhances Snowflake’s ability to process both structured and unstructured data by adding over 100 data connectors to its platform. Such innovations strengthen Snowflake’s position as a comprehensive solution for data analytics and engineering.
Updated Guidance for Q4 and Fiscal 2025
Snowflake’s management provided optimistic guidance for the current quarter ending January 2025 and the full fiscal year. For Q4, the company expects product revenue to range between $906 million and $911 million, representing a 23% year-over-year increase. Analysts had anticipated product revenue of $893.5 million, making this an encouraging revision.
For fiscal 2025, Snowflake raised its product revenue forecast to $3.43 billion, reflecting a 29% year-over-year growth, up from the previously projected 26%. This marks the company’s most substantial full-year product revenue guidance increase to date.
On the margin front, Snowflake maintained its fiscal 2025 guidance for a non-GAAP product gross margin of 76% and a non-GAAP operating margin of 5%. The company also expects its non-GAAP adjusted free cash flow margin to improve to 26%, underscoring its focus on profitability and cash generation.
Stock Price Performance
Following the earnings announcement, Snowflake’s stock price soared by 21%, closing at $156.70 during early trading on November 23, 2024. The stock’s strong performance reflects investor confidence in the company’s growth prospects and its ability to execute on its strategic initiatives.
Snowflake is up ~17%+ as of now after hours, reporting $942m revenue aka a 5% beat, also raises guidance on full year (by 2%). 127% net dollar retention. Other metrics solid too.
We’ve been tracking a combination of stronger sales team metrics and sentiment + growing sales… pic.twitter.com/oF4ES5h0Ng
— Ryan @ RepVue (@ryan_c_walsh) November 20, 2024
Over the past year, Snowflake’s stock has traded within a 52-week range of $107.13 to $237.72. Analysts’ average price target for the stock stands at $175.72, with a high estimate of $220.00. The stock’s upward trajectory post-earnings suggests it may approach or exceed these targets if the company continues to deliver strong financial results.
Despite its impressive performance, Snowflake faces several challenges that could impact its growth trajectory. The fourth quarter is typically slower for Snowflake due to the holiday season, which could dampen revenue growth in the short term. The company faces increasing competition from other cloud-based data platforms, including those promoting open data formats like Iceberg.
While Snowflake’s integration of Iceberg Tables has shown early promise, maintaining a competitive edge will require continuous innovation. While Snowflake’s Cortex AI platform is gaining traction, it is still in its early stages. The success of AI products will depend on their ability to deliver tangible value to customers in the coming quarters.
Predictions for the Future
Snowflake’s strong Q3 performance and updated guidance point to a promising future. The company’s investments in AI, product innovation, and partnerships with cloud providers like Amazon Web Services and Microsoft are likely to drive sustained growth.
As I have mentioned since their IPO: $SNOW
It is important to understand how Snowflake makes money and how it flows through the P&L.
This is not a SAAS business and varies from a traditional PAAS business. pic.twitter.com/saqIJQbrS6
— Sean D. Emory (@_SeanDavid) November 20, 2024
Analysts expect Snowflake’s focus on structured data analytics and its ability to integrate AI seamlessly into its offerings to remain critical growth drivers. The company’s long-term contracts, as evidenced by its robust RPO, provide revenue visibility and stability.
However, Snowflake’s ability to navigate challenges such as seasonality and competition will be crucial in determining its future performance. Additionally, further adoption of AI products like Cortex AI and continued success in displacing competitors will be key factors to watch.
