What Happened:
Shares of data warehouse-as-a-service Snowflake (NYSE:SNOW) jumped 6.3% in the after-market session after stocks, especially tech names, rebounded following Microsoft and Alphabet's strong Q1 results, which surpassed top and bottom-line estimates to kickstart the new earnings season. Cloud services continued to be in high demand as Microsoft's cloud unit (Microsoft Azure) reported solid growth despite negative channel feedback and fears of cost optimization by customers. Google Cloud also beat estimates and Search growth was healthy, a good sign for the macro since advertising is a leading indicator. Azure and Google Cloud results were positive read-throughs for SaaS companies in general but particularly for those with revenue models where customers are billed based on the volume of cloud resources consumed due to aforementioned fears of customer spend optimization.
What is the market telling us:
Snowflake's shares are quite volatile and over the last year have had 63 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 21 days ago, when the company dropped 6.64% on the news that the ADP payrolls report showed that the private sector added 145k jobs in March, much lower than analysts' expectations for 210k. This triggered concerns of a potential recession amid continued comments from Fed officials that rate hikes are still needed to tame inflation. As a reminder, higher rates have a negative impact on equity valuations, as future cash flows must be discounted back.
Snowflake is up 9.13% since the beginning of the year, but at $147.86 per share it is still trading 25.3% 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 $582.35.
Is now the time to buy Snowflake? Access our full analysis of the earnings results here, it's free.