What Happened:
Shares of data warehouse-as-a-service Snowflake (NYSE:SNOW) fell 5.9% in the morning session after major indices declined (Nasdaq down 2.3%, while the S&P 500 index fell 1.9%) on fresh concerns about the strength of the economy after the Bureau of Labour Statistics reported non-farm payrolls for July 2024, which revealed that the U.S. economy added 114 000 jobs (versus expectations for +179,000 jobs). In addition, the data revealed that the unemployment rate rose to 4.3%, the highest since October 2021.
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. 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 quite volatile and over the last year have had 15 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 5 months ago, when the stock dropped 24.9% on the news that the company reported fourth-quarter results and provided product guidance for Q1, which missed analysts' estimates. In addition, net revenue retention continued to decline. Snowflake attributed some of the challenges to significant holiday impacts in December and January, a recurring challenge for predicting consumption patterns. Consequently, understanding consumption trends proved difficult, with trends yet to revert to pre-FY'24 levels.
As a result, these concerns were baked into the product growth guidance, with management expecting "increased revenue headwinds associated with product efficiency gains, tiered storage pricing, and the expectation that some of our customers will leverage Iceberg Tables for their storage." Another significant negative that is adding to the stock's weakness is the announcement of CEO Frank Slootman's retirement.
Slootman is a highly-respected tech executive who guided Snowflake through its public offering. Before that, he was CEO of ServiceNow (NYSE:NOW), a company he also shepherded through the IPO process. On the other hand, Snowflake delivered strong free cash flow while still growing revenue at 30%+, which is certainly an impressive feat.
Snowflake is down 37% since the beginning of the year, and at $119.24 per share it is trading 49.5% below its 52-week high of $236 from February 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 $469.18.
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