Snowflake (NYSE:SNOW) Posts Better-Than-Expected Sales In Q1 But Stock Drops 10.5%

Adam Hejl /
2022/05/25 4:15 pm EDT
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Data warehouse-as-a-service Snowflake (NYSE:SNOW) reported results ahead of analyst expectations in the Q1 FY2023 quarter, with revenue up 84.5% year on year to $422.3 million. Snowflake made a GAAP loss of $165.7 million, improving on its loss of $203.2 million, in the same quarter last year.

Is now the time to buy Snowflake? Access our full analysis of the earnings results here, it's free.

Snowflake (SNOW) Q1 FY2023 Highlights:

  • Revenue: $422.3 million vs analyst estimates of $147.6 million (2.26% beat)
  • EPS (GAAP): -$0.53
  • Product revenue guidance for Q2 2023 is $437.5 million at the midpoint
  • Free cash flow of $172.3 million, up 143% from previous quarter
  • Net Revenue Retention Rate: 174%, down from 178% previous quarter
  • Customers: 6,322, up from 5,944 in previous quarter
  • Gross Margin (GAAP): 64.9%, up from 57.4% same quarter last year

"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.

Founded in 2013 by three French engineers who spent decades working for Oracle, Snowflake (NYSE:SNOW) provides a data warehouse-as-a-service in the cloud that allows companies to store large amounts of data and analyze it in real time.

Data is the lifeblood of the internet and software in general, and the amount of data created is growing at an accelerating pace. Likewise, the importance of storing the data in scalable and efficient formats continues to rise, especially as the diversity of the data and associated use cases expand from analyzing simple, structured data to high-scale processing of unstructured data, images, audio and video.

Sales Growth

As you can see below, Snowflake's revenue growth has been incredible over the last year, growing from quarterly revenue of $228.9 million, to $422.3 million.

Snowflake Total Revenue

This was another standout quarter with the revenue up a splendid 84.5% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $38.5 million in Q1, compared to $49.3 million in Q4 2022. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.

Ahead of the earnings results the analysts covering the company were estimating sales to grow 60.7% over the next twelve months.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.

Customer Growth

You can see below that Snowflake reported 6,322 customers at the end of the quarter, an increase of 378 on last quarter. That is a fair bit slower customer growth than what we are used to seeing lately, suggesting that the customer acquisition momentum is slowing a little bit.

Snowflake Customers

Key Takeaways from Snowflake's Q1 Results

With a market capitalization of $40.7 billion, more than $3.81 billion in cash and with free cash flow over the last twelve months being positive, the company is in a very strong position to invest in growth.

We were impressed by the exceptional revenue growth Snowflake delivered this quarter. And we were also excited to see that it outperformed analysts' revenue expectations. On the other hand, it was unfortunate to see the slowdown in customer growth and the revenue retention rate deteriorated a little. Zooming out, we think this was still a decent, albeit mixed, quarter, showing the company is staying on target. But investors might have been expecting more and the company is down 10.5% on the results and currently trades at $118.97 per share.

Should you invest in Snowflake right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 70% year on year and best-in-class SaaS metrics it should definitely be on your radar.

The author has no position in any of the stocks mentioned.