Shares of data warehouse-as-a-service Snowflake (NYSE:SNOW) fell 13.4% in the after-market session after 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.
What is the market telling us:
Snowflake's shares are very volatile and over the last year have had 53 moves greater than 5%. But moves this big are very rare even for Snowflake and that is indicating to us that this news had a significant impact on the market's perception of the business. The previous big move was about two months 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 13.1% since the beginning of the year, but at $153.60 per share it is still trading 22.4% 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 $603.43.
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