What Happened:
Shares of data warehouse-as-a-service Snowflake (NYSE:SNOW) jumped 8.17% in the morning session after the market showed positive reception towards its investor day event held on June 27, 2023. During the event, the company introduced new products and affirmed the fiscal year 2029 product revenue target of $10 billion. In addition, management raised non-GAAP operating margin from 20% to 25%, and adjusted free cash flow margin from 25% to 30% for 2029. Following the event, William Blair analyst Jason Adar, noted that Snowflake is "poised to see strong tailwinds" from generative artificial intelligence adoption, given its control of high-value enterprise data. Similarly, Wells Fargo’s team noted they left the event "appreciative of the long-term potential, including increasing generative AI and application development opportunities." Lastly, the company announced it received U.S. Department of Defense Impact Level 4 Authorization on AWS GovCloud. This means that Snowflake can better help government agencies and partners modernize their systems and securely share data, and this could be an added revenue driver in the Fed vertical. This authorization is usually reserved for proven companies with best-in-class security capabilities.
What is the market telling us:
Snowflake's shares are very volatile and over the last year have had 49 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 about one month 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 37.3% since the beginning of the year, and at $186.44 per share it is trading close to 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 $732.64.
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