Shares of data warehouse-as-a-service Snowflake (NYSE:SNOW) fell 5.34% in the afternoon session after Netflix and Tesla's earnings results led to weakness in tech today, with investors possibly taking profits on winners. Specifically, Netflix missed on revenue, driven by weaker revenue per subscriber, and also guided to Q3 revenue below expectations. The much-awaited topline tailwind from advertising revenue is not helping yet, which also added to the disappointment. With the stock up 60+% year-to-date heading into earnings, the market was clearly expecting a lot and pricing in a lot of good news.
Additionally, Tesla reported weaker-than-expected operating margins and free cash flow, and vehicle production will slow in Q3 due to factory shutdowns for maintenance and improvement. CEO Musk mentioned that Tesla could cut prices if economic conditions deteriorated and cited an uncertain macro backdrop a few times during the earnings call. With well over half of companies that have reported Q2 earnings thus far showing better-than-expected results, this commentary was worrisome. Lastly, Tesla stock had even more good news priced in, having headed into earnings up well over 100% year-to-date.
The Nasdaq index was up roughly 35% year-to-date as of yesterday. There are many software, internet, and general tech names up 50% or more year-to-date, so today's results from Netflix and Tesla were probably a splash of cold water, causing some to reign back near-term expectations or to take profits and realize some gains more than halfway through calendar 2023. Note that today's S&P 500's performance (down much less than the Nasdaq) and the Dow's performance (actually up on the day) further support the narrative that it is specifically tech stocks being impacted today.
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 2 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 29.6% since the beginning of the year, but at $175.62 per share it is still trading 11.3% 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 $691.61.
Is now the time to buy Snowflake? Access our full analysis of the earnings results here, it's free.