Snowflake 2024 Q4 Results & Price Reaction

[FourthStooge]

Fools,

Well, it looks like Snowflake had a good quarter but the guidance was uncharacteristically low (22% for the new FY). On top of this, they announced a change of CEO, replacing Slootman with Sridhar Ramaswamy, a former Google and Neeva (Snowflake acquisition) executive.

Product revenue came in at $738 million, a 2.8% beat. Total revenue was $775 million - about $20 million higher than analyst expectations (they don’t guide for this).

Next quarter, product revenue is expected to increase by about 27% YoY to $747.5 million at the midpoint of guidance.

No acceleration in consumption yet. Also, during the conference call, they were extra cautious on calling an improvement in consumption patterns. They refused to provide a timeline on when this will happen.

However, they did tell us that existing customers are now doing longer term deals again. This, combined with the fact that revenues are based upon consumption, could explain a lot of the lower guidance.

In other words, if a customer does a one year deal, they’ll need to burn through it by the end of the year. This amount flows to revenues. If they do a five years agreement (and prepay it) they don’t need to burn through their deal amount until the end of the 5th year. I think a lot of expected revenue is being contracted now, but not being booked as revenue in the short term due to longer term deals and the customers ability to draw down the amounts on an as-needed basis.

Take a look at their RPOs:

FY 2024 Q$ increased by a lot. They must be doing bigger deals, on an annualized basis, too. They even announced a $250 million deal in the quarter.

So they got a lot more money now. They just don’t want to forecast as much moving to product revenue. Here is how their business model works:

They also discussed a few new products expected to be GA during the year, at which time they can draw down the prepaid billings. They also insist that they strive to keep the price performance curve working for their customers, ensuring that they get lower unit prices (my interpretation) as they grow.

In my opinion, the quarter wasn’t great, because consumption trends didn’t improve yet. But I’d say it was very good. They beat guidance and analyst expectations and got whacked because of guidance (and Slootman leaving the CEO position). The fact that they continue to provide price performance is a very good customer retention strategy, keeping customers growing revenues at continually better prices. As long as they execute on their strategy, the longer term deals should see billings move to revenues quicker than the term of the contracts, providing a nice tailwind to product revenues. The new products coming out this year should help a lot with this.

This, in my opinion, is a pretty good opportunity to buy shares if one is looking to invest for the next year or longer. The analogy of a spring being compressed comes to mind.

DJ

[rodatl]

Thanks for this DJ, I didn’t have a chance to dig into the ER yet, so this helps.
I am very conflicted. SNOW is the weakest performer on my pure SAAS plays, by far. They are still -48% from 10/31/2021, when things started to go sour in the hyper-growth world. Their consumption model is more similar to what most SAAS companies do with Professional Services (pre-paid PS credits) than Products. Then the goal becomes consume the “credits” before expiration to bring forward ELA renewals/extensions, rinse and repeat. If that doesn’t happen, the customer loses the credits, which become corporate revenue at that point (but you can be certain the NRR will be lower than 100% in that case).
The problem I have is this model puts a lot of pressure on the company to innovate at crazy rates, since their customers are buying more than what they know they will need, betting on such constant innovation (and acquisitions).
On the other hand, it’s extremely hard to close a $250M customer. Very few software companies can do that today besides Microsoft, Google, AWS, and comparable players. That gives me confidence that their plans are resonating with customers, but not committing to a higher consumption rate troubles me.
I will have to think over this one. I might exit, increase, or do nothing.

Rod

[Fool4ZTribe]

In addition to the above-mentioned StockMarketNerd’s analysis, Fool Brian Stoffel - has a 20 minute video on X regarding the results - it’s well-balanced but the message is if you liked it yesterday, you’ll love it today. @Brian_Stoffel_

[GDavenport]

A few observations from me:

1. Snowflake is (was my largest position)

2. The new CEO is very experienced and there is quite a bit of content online about his CV. I think he is a great choice for the head seat. Having said that, there is no replacement for Frank S. as a founder/leader.

My company does business with SNOW and I was surprised to hear that I could get Frank on the phone to speak with us about our future and partnership with SNOW. I hope that continues to be the case with
Sridhar. If so, I hope his message is received as well as or better than Frank (fantastic cheerleader and salesman).

3. Forward guidance is abysmal. Like, falling off of a cliff abysmal. While I don’t believe it will be that terrible (sandbagging!), I think this is a reset to give Sridhar a new foundation to build from and grow. If I was a newly incoming CEO, I would REALLY appreciate that.

4. SNOWs NRR has been declining since their peak of 170ish% and is still in decline. NRR forecasts roughly 20% annual growth among current customers and is still quite healthy though.

5. This is a personal, nothing to do with the stock and everything to do with the company, observation: SNOWFLAKE tools are dramatically enabling our workflows in a way that we have not achieved with any prior data collection, modeling and analytics platform.

It’s not the cloud or speed, it’s the tools and the unending technical support from them in our buildout. They are constantly on the phone with us, developing new use cases and connecting us with operating partners who reach into the physical world to build the last mile (first mile) data streams for us to use. At every turn, they are making it easier today to spend money with them than yesterday. This is impressive and is quite a different experience than our AZURE relationship group.

The STOCK has fallen enough that it will present some nice buying opportunities for longer hold terms. I think we will see some range bound pricing discovery as the market attempts to digest both results, forecasts and HR changes.

I’m looking to pick up shares in the 170s.

[FinallyFoolin]

I posted this on X but just finished the report.

Just finished $SNOW call. I’m very happy with where they are and what they’re doing. I’m excited about the new CEO.

Many people’s (including my own) biggest complaint with Snowflake over the past few years is how long new features take to get to GA or even Open Preview (where customers can start to use it). VERY happy to hear Sridar say in his opening statement,
"To deliver on the opportunity ahead, we must have clear focus and move even faster to bring innovation on the Snowflake platform to our customers and partners. This will be my focus. "
And later in QA
“…getting this in the hands of our customers, and having them realize value is the top priority.”
"Getting them out quickly and driving adoption is easily my highest priority. "
“And that’s why acting with speed and urgency is especially important for us.”
“need to react pretty quickly to a very quick silver AI landscape is what I’m going to be focused on”

I think his history indicates a high likelihood of success here, especially with what the much smaller Neeva team did in a short time and on a much more limited budget.

CHANGED & MUCH MORE CONSERVATIVE GUIDANCE One thing I’m looking for in future quarters is bigger beats than the past year with more conservative than before guidance.
Changed forecasting, “We have evolved our forecasting process to be more receptive to recent trends.”
Q - “it looks like you’re guiding with a lot more conservatism than a year ago.”
A - “I think we are definitely being more conservative this year given the consumption patterns we saw in '24”
Paired with, " There’s a lot of new products coming into GA and public preview this year that we have not taken into account in our forecast, and we will do so once we start to see that consumption. And so, we will take this quarter by quarter for the year."
“we’ve revised our model to look at more recent history rather than going back too far in history for forecasting consumption patterns”
"There’s a lot of new performance enhancements being rolled out on our software this year that are going to have an impact. "

@galacticbarrier posted an interesting observation from RPO & revenue the past couple years. My numbers are a bit different than his, he had 73% both years. I have 79% & 76%. In both cases however, RPO indicating 40% YoY for next FY. If the number drops say 5%, 30% YoY.

Here’s another example of their more conservative guidance: “We expect approximately $50 million of GPU-related costs in fiscal year '25, approximately $10 million flowing through cost of product revenue. For the purpose of forecasting, we’re not including any incremental revenue associated with these features.”
Modeling to PAY for GPUs but not to USE them. Even if they get 50% margin (lower than their 78%), that raises the guidance by 1.5% or so. The

Snowflake Advantage, ease of use: “Snowflake Cortex, we are implementing it as a core platform layer. It ships with every deployment and it makes AI readily accessible from SQL, so that even an analyst that’s not an LLM expert or a Python expert can simply write SQL for things like summarization or sentiment detection data that is already in Snowflake. Our overall aspiration here is to make AI really, really simple for our customers to use.”
“the things that we’re driving toward is creating easy ways for people to be able to talk to subsets of data”

Improved GCP terms 62% growth in jobs = 33% rev growth

Guiding SNOWPARK revenue to triple for the year from 35M to about 100M!!

LOTS OF NEW PRODUCTS HITTING GA AROUND SNOWFLAKE SUMMIT. Wonder what new products will be announced at Summit?

Cortex will be in public preview very soon, and we expect it to be generally available on and around the Summit’s time frame.

Snowpark Container Services is already in public preview in AWS, and we expect it to be generally available in that same time frame, give or take a couple of months from Summit.

Iceberg Tables is already on public preview across all three clouds, and will be generally available again, also in the Data Cloud Summit time frame.

Unistore, which enables combining transactional and analytical capabilities in single applications went very recently into public preview in AWS and will be generally available in the second half of the year.

expect a strong showing of product capabilities at the Data Cloud Summit.