Shares of data warehouse-as-a-service Snowflake (NYSE:SNOW) jumped 7.42% in the morning session after MongoDB reported a beat-and-raise quarter where key metrics broadly exceeded expectations and guidance was strong. Consumption-based revenue models in SaaS such as MongoDB, Datadog, Snowflake, and certain of Cloudflare's products have been much debated--will an uneven macro hurt these companies as customers cut headcount and streamline spend or will ongoing increases in demand be reflected much faster than with traditional subscription models? MongoDB's earnings results show that demand is healthy, and while there may be cost containment efforts, they are not hindering the company's results. Additionally, there's a case to be made that demand for AI and the technology load that AI creates is a peripheral benefit to SaaS companies that enable data & analytics, infrastructure monitoring, and that are generally pickaxes for software engineers and developers.
What is the market telling us:
Snowflake's shares are very volatile and over the last year have had 54 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business. The previous big move was 9 days ago, when the stock dropped 13.4% on the news that the company reported first-quarter revenue, product revenue, and earnings per share (EPS) that surpassed analysts' expectations. Gross margin also improved. However, net retention rate deteriorated. In addition, both next quarter and full year guidance for product revenue and operating income margin missed expectations--this is the major driver of the stock move down. Product revenue guidance was lowered, with the company observing slower-than-expected revenue growth since Easter, as customers remained hesitant to sign large multi-year deals. Overall, it was a complicated quarter for Snowflake with a weak near-term outlook.
Snowflake is up 30.3% since the beginning of the year, but at $176.51 per share it is still trading 10.8% below its 52-week high of $197.98 from September 2022. Investors who bought $1,000 worth of Snowflake's shares at the IPO in September 2020 would now be looking at an investment worth $695.47.
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