What Happened:
Shares of data warehouse-as-a-service Snowflake (NYSE:SNOW) jumped 6.05% in the morning session after analyst Patrick Colville of Scotiabank upgraded his rating from Sector Perform (Hold) to Sector Outperform (Buy) and increased his price target from $137 to $212, which is a more than 50% increase. This magnitude of price target increase is both large and uncommon. He added that fiscal 2024 revenue is "now firmly underwritten”, which means he thinks it’s highly achievable. Colville also stressed data science and artificial intelligence capabilities that will expand Snowflake's market opportunity (roughly 5% penetrated) to $102B in 2025.
What is the market telling us:
Snowflake's shares are very volatile and over the last year have had 47 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 two months 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 34.2% since the beginning of the year, and at $181.95 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 $716.08.
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