Why Snowflake (SNOW) Shares Are Getting Obliterated Today

Petr Huřťák /
2024/01/31 12:31 pm EST

What Happened:

Shares of data warehouse-as-a-service Snowflake (NYSE:SNOW) fell 5.4% in the morning session after as major stock indices retreated, with the Nasdaq index recording the steepest decline compared to the S&P 500 and Dow after mixed earnings results from tech giants, including Alphabet (weak ad revenue), Microsoft (disappointing guidance), and AMD (weak guidance). 

These results likely tempered the optimism that had been building since the late 2023 rally as the new earnings season kicked off. Moreover, market participants eagerly await the outcome of the Fed's first policy meeting of the year, scheduled for January 31, 2024, with the consensus expectation for rates to remain unchanged in the range of 5.25% to 5.5%. 

As a reminder, the driver of a stock's value is the sum of its future cash flows discounted back to today. With lower interest rates, investors can apply higher valuations to their stocks. No wonder so many in the investment community are optimistic about 2024. We at StockStory remain cautious, as following the crowd can lead to adverse outcomes. During times like this, it's best to own high-quality, cash-flowing companies that can weather the ups and downs of the market.

The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Snowflake? Access our full analysis report here, it's free.

What is the market telling us:

Snowflake's shares are very volatile and over the last year have had 29 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 biggest move we wrote about over the last year was 8 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 5.6% since the beginning of the year, and at $199.76 per share it is trading close to its 52-week high of $209.54 from January 2024. Investors who bought $1,000 worth of Snowflake's shares at the IPO in September 2020 would now be looking at an investment worth $786.75.

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