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Snowflake Earnings: Mixed News, But Signs of Stability

Snowflake stock mildly undervalued, but investment needs weigh on margins.

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Securities In This Article
Snowflake Inc Ordinary Shares - Class A

Key Morningstar Metrics for Snowflake

What We Thought of Snowflake’s Earnings

Snowflake SNOW reported mixed earnings in its fiscal first quarter. Revenue growth was ahead of expectations, but updated full-year guidance showed expected margins again moving in the wrong direction. It was encouraging that management is now looking for 24% year-over-year growth in product revenue, slightly higher than the previous outlook of 22%. However, non-GAAP operating margins are now expected to be 3% for full-year results, compared with the previous outlook of 6% and actual results of 8% last year. With slightly higher growth but lower margins for the year roughly offsetting, we do not plan to change our long-term forecasts, and we maintain our fair value estimate of $187 per share.

After a rough previous quarter, we sense Snowflake is starting to find some stability. However, we will eventually need to see some better margin realization, and there is still some risk from decelerating revenue growth. This increases the downside risk if consumption and new workloads (hopefully driven by the company’s product launches) can’t make up for some of the other headwinds. We estimate revenue growth will likely decelerate to a mid-to-high-20% rate by the end of the year from over 30% recently. If that deceleration continues, there are risks to our fair value estimate.

We thought shares were mildly undervalued heading into earnings, and since they are up roughly 4% in after-hours trading, that puts them within 10% of our fair value estimate. We still think that maintaining decent growth in the mid-20s after the current year and seeing margins go in the right direction will be key for Snowflake as it builds off current results.

Snowflake Stock vs. Morningstar Fair Value Estimate

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

Eric Compton, CFA

Sector Director
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Eric Compton, CFA, is the director of equity research, technology, for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. Before becoming technology sector director in late 2023, he was an equities strategist and covered the U.S. and Canadian banking sectors.

Before joining Morningstar in 2015, Compton was a business analyst for ESIS, a global provider of risk management products and a subsidiary of ACE Group.

Compton holds a bachelor's degree in applied health science from Wheaton College. He also holds the Chartered Financial Analyst® designation.

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