Snow Earnings

Investment Analysis Clubs Saul’s Investing Discussions
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Snowflake Reports Financial Results for the First Quarter of Fiscal 2023
4:05 PM ET, 05/25/2022 - Business Wire
Product revenue of $394.4 million in the first quarter, representing 84% year-over-year growth Remaining performance obligations of $2.6 billion, representing 82% year-over-year growth 6,322 total customers Net revenue retention rate of 174% 206 customers with trailing 12-month product revenue greater than $1 million

No-Headquarters/BOZEMAN, Mont.–(BUSINESS WIRE)–May 25, 2022-- Snowflake (NYSE: SNOW), the Data Cloud company, today announced financial results for its first quarter of fiscal 2023, ended April 30, 2022.

This press release features multimedia. View the full release here: https://www.businesswire.com/news/home/20220525005294/en/

Snowflake Q1 FY23 Infographic (Graphic: Snowflake)

Revenue for the quarter was $422.4 million, representing 85% year-over-year growth. Product revenue for the quarter was $394.4 million, representing 84% year-over-year growth. Remaining performance obligations were $2.6 billion, representing 82% year-over-year growth. Net revenue retention rate was 174% as of April 30, 2022. The company now has 6,322 total customers and 206 customers with trailing 12-month product revenue greater than $1 million. See the section titled “Key Business Metrics” for definitions of product revenue, remaining performance obligations, net revenue retention rate, total customers, and customers with trailing 12-month product revenue greater than $1 million.

“During Q1, product revenue grew 84% year-on-year to $394 million dollars. We closed the quarter with a record $181 million of non-GAAP adjusted free cash flow, pairing high growth with improving unit economics and operational efficiency,” said Frank Slootman, Chairman and CEO, Snowflake. “Snowflake’s strategic focus is to enable every single workload type that needs access to data.”

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Snowflake Inc. reported a narrower loss and better-than-expected revenue in the first quarter.

The company, which provides cloud data warehousing software, narrowed its net loss to $165.8 million, or loss of 53 cents a share, in the quarter ended April 30, compared with a net loss of $203.2 million, or a loss of 70 cents a share, a year earlier. Analysts polled by FactSet expected a loss of 52 cents a share.

Revenue rose to $422.4 million from $228.9 million. Analysts polled by FactSet expected $413.7 million.

Snowflake said it had 6,322 customers in the first quarter. Two hundred and six customers accounted for more than $1 million in product revenue over the past 12 months.

The company guided for revenue between $435 million and $440 million in the second quarter. For fiscal 2023, it guided for revenue between $1.89 billion and $1.9 billion, a slight uptick from its prior range of $1.88 billion and $1.9 billion.

Shares of Snowflake declined 13.5% to $114.90 in after-hours trading.

Marketwatch.com

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Really quick thoughts…

Revenue… sequential growth of 10.1%, the lowest I have on record. Down from 14.8% last quarter and 20.2% a year ago.

RPO… decreased sequentially?! I understand Q1 has some seasonality to it and is consistently their weakest but negative growth?? I assume much of it was pulled forward last quarter but this is concerning, especially considering…

Non-GAAP S&M expense as a % of revenue… increased sequentially to 44%, up from 40% and 41% the last two quarters, although down from 49% a year ago. So we have an increased spend in sales in marketing coupled with… negative RPO growth and the weakest product revenue growth reported yet? Not what I want to see.

Non-GAAP operating income margin… decreased sequentially to 0%, although was improved from -16% a year ago. Nothing too concerning here as we saw the additional spend was spent in sales and marketing.

Adjusted FCF margin… was massive at 43%, although management explained this was coming on the last CC. My concern regarding the adjusted FCF was the FY guidance. It was increased from 15% to 16% which indicates to me they expect this figure to drop a lot more than I was hoping for. I am sure this guidance is conservative but considering they just posted 43% FCF margins, I would think the FY figure should be well above 16% (especially considering last years FY figure was 12%).

Total customers… additions were quite disappointing. The number of customers added over the last five quarters looks like this: 393, 458, 426, 528, 378… So they added fewer customers than they did a year ago off a much larger base. Not very encouraging.

$1M customers… saw more of the same. The number of $1M customers added over the last five quarters looks like this: 27, 12, 32, 36, 22. So again, we see they added fewer large customers than they did a year ago. Not what I was looking for.

Guidance… left a lot to be desired. FY product revenue was raised by… $3 million!!! And the quarterly guidance indicates they expect to continue growing about ~12%, assuming a similar beat to the previous two quarters. Are the days of 20% QoQ growth gone?

I am having to squint really hard to find much to like. I understand management made the call last quarter to take some short term pain for long term gain but this is not what I was expecting. Going to be listening to the CC coming up in a few minutes very closely…

Rex
Long SNOW - 9%

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At some point we have to accept the reality of an inflationary recession’s effect on even SaaS companies. SNOW’s potential client pool is surely treading lightly right now as is just about every company in the entire world.

There will be a lot of squinting to find much to like. It’ll now be about whether or not there’s a relatively better company/asset to invest.

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The revenue related metrics were expected to slow given the “rebate” SNOW customers received. You are not going to get as many new $1M customers in that environment, but this a 1-2 quarter adjustment (until it happens again) but does not show slowing growth necessarily.

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Not really sure why so many are surprised that what management said would happen did actually happen. I’m disappointed by the smaller beat but if you go by what management’s provided last Q, the business is still booming.

On the last call, $SNOW management said there would be a 100M hit on revenue over the next 12 months that would be balanced out by more workloads being added. The timeframe for the additional workloads is 3-6 months. My rough napkin math says per quarter, it’d be around 40M, 30M, 20M, 10M. If you plug in an additional 40M, you’ll see the BUSINESS actually ACCELERATED revenue. Almost 21% QoQ and 101% YoY.

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An important point to consider is that Snowflake lowered their prices to get more workflows moved into their platform. Now, this works very well in a normal environment, as showed several times by the management in the past (it’s not the first time they did this).

BUT, right now every CEO will think twice about doing anything that doesn’t benefit the financial performance immediately. Why would they? Sure, long term it’s a good thing to do but I think it’s not the priority right now.

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Hey reaffirmed product revenue guidance of $1.9B for the year.

Let’s assume they have a minuscule 2% beat on that, so $1.938B on the year.

Let’s also assume they beat the Q2 guide by just 2% and straight line Q3 and Q4. FY23 product revenue looks like this ($m, QoQ growth):

Q1 - $394.4 (9.7%)
Q2 - $448.8 (13.8%)
Q3 - $511.6 (14.0%)
Q4 - $583.2 (14.0%)

So what does this mean? That this quarter is not only a normal seasonal lull, but they also being blunted by the efficiency drivers. The above posits that a measly 2% beat will result in acceleration for the remaining QoQs.

Hard to look three months ahead, though. In this market, SNOW might be 1x Sales before August.

Long SNOW, large position.

Eric

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Frank sounds very confident about continued FCF margin growth far into the future.

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Thanks FinallyFoolin. When you wrote, On the last call, $SNOW management said there would be a 100M hit on revenue over the next 12 months that would be balanced out by more workloads being added. The timeframe for the additional workloads is 3-6 months. My rough napkin math says per quarter, it’d be around 40M, 30M, 20M, 10M. If you plug in an additional 40M, you’ll see the BUSINESS actually ACCELERATED revenue. Almost 21% QoQ and 101% YoY.
…Napkin math is my favorite and I couldn’t agree more.

What I did:
I sold my 2.25% position in Monday.com to buy add to my 21% position in Snowflake, after hours at $115/share.

Why I did it:
I believe Snowflakes value proposition and moat are much greater than Monday.com. Despite some time value to money, I believe Snowflake being a consumption based vs a subscription based business model and them dealing with both recently discounting pricing and the current macro regarding some large retailer customers, pointed out by Snowflake management in the CC, is going to lead to Mr Market needing to correct for future upside surprises when business performance rebounds.

Best

Jason

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