Snowflake Earnings: Raised Guidance Drives Up Stock

Key Morningstar Metrics for Snowflake

• Fair Value Estimate: $129.00
• Morningstar Rating: 2 stars
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: Very High

What We Thought of Snowflake’s Earnings

Snowflake SNOW reported strong third-quarter earnings, with revenue and profitability coming in above guidance. Management now expects fiscal 2025 product revenue growth of 29%, up from 26%. Non-GAAP operating margins are expected to reach 5%, up from the previous guide of 3%, driven by the higher revenue outlook.

While overall results were positive, sending shares up 20% after hours, we are revisiting our expectations as we transfer coverage to a new analyst. We have tempered our long-term revenue growth estimates to reflect increasing competition in the industry and the possibility for growth to decelerate again over the next several years, which was one of the primary worries throughout 2024. While the current quarter’s results suggest growth can reaccelerate into the mid-20% range, we are not convinced this type of growth can hold for several more years. As a result, we’ve dropped our fair value estimate to $129 per share from $187, and we view shares as moderately overvalued following the after-hours pop.

Third-quarter revenue came in at $942 million, growing 28% year over year and 8% sequentially. Product sales grew 29% year over year due to increased adoption of the firm’s AI solutions, new data engineering features, and improving IT budget conditions, offsetting losses in storage revenue from Iceberg’s adoption.

In addition to strong customer acquisitions, the firm reported a solid net retention rate of 127%. This was the first time in several years that the metric did not decline sequentially, as Snowflake’s cross-selling opportunities and customer base continue to mature. Remaining performance obligations were up 55% from the previous year as the firm continues identifying new workloads. We expect contributions from new products and some momentum in AI offerings to drive above-guidance near-term growth, but we remain wary of how long mid-20% growth can last.