Snowflake (SNOW)

Cloud data platform provider Snowflake (NYSE:SNOW) reported Q3 CY2025 results exceeding the market’s revenue expectations, with sales up 28.7% year on year to $1.21 billion. Its non-GAAP profit of $0.35 per share was 12.5% above analysts’ consensus estimates.

Company Overview

Named after the unique architecture of its data warehouse which resembles a snowflake pattern, Snowflake (NYSE:SNOW) provides a cloud-based data platform that enables organizations to consolidate, analyze, and share data across multiple cloud providers.

Data is the lifeblood of the internet and software in general, and the amount of data created is accelerating. As a result, the importance of storing the data in scalable and efficient formats continues to rise, especially as its diversity and associated use cases expand from analyzing simple, structured datasets to high-scale processing of unstructured data such as images, audio, and video.

Snowflake competes primarily with cloud data warehouse offerings from major cloud providers including Amazon Web Services (Amazon Redshift), Microsoft Azure (Azure Synapse Analytics), and Google Cloud Platform (BigQuery). Other competitors include traditional data warehouse vendors like Oracle, IBM, and Teradata, as well as newer cloud-native analytics platforms like Databricks.

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Thankfully, Snowflake’s 55.1% annualized revenue growth over the last five years was incredible. Its growth surpassed the average software company and shows its offerings resonate with customers, a great starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within software, a half-decade historical view may miss recent innovations or disruptive industry trends. Snowflake’s annualized revenue growth of 29.4% over the last two years is below its five-year trend, but we still think the results suggest healthy demand.

This quarter, Snowflake reported robust year-on-year revenue growth of 28.7%, and its $1.21 billion of revenue topped Wall Street estimates by 2.4%.

Looking ahead, sell-side analysts expect revenue to grow 23.4% over the next 12 months, a deceleration versus the last two years. Still, this projection is admirable and implies the market is baking in success for its products and services.

Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.

Snowflake’s billings punched in at $1.36 billion in Q3, and over the last four quarters, its growth was fantastic as it averaged 30.4% year-on-year increases. This performance aligned with its total sales growth, indicating robust customer demand. The high level of cash collected from customers also enhances liquidity and provides a solid foundation for future investments and growth.

This quarter, Snowflake reported 688 enterprise customers paying more than $1 million annually, an increase of 34 from the previous quarter. That’s a bit fewer contract wins than last quarter but about the same as what we’ve seen over the previous year, suggesting the company still has decent sales momentum despite the weaker quarter.

The customer acquisition cost (CAC) payback period represents the months required to recover the cost of acquiring a new customer. Essentially, it’s the break-even point for sales and marketing investments. A shorter CAC payback period is ideal, as it implies better returns on investment and business scalability.

Snowflake is quite efficient at acquiring new customers, and its CAC payback period checked in at 33 months this quarter. The company’s rapid recovery of its customer acquisition costs indicates it has a strong brand reputation, giving it more resources pursue new product initiatives while maintaining the flexibility to increase its sales and marketing investments.

One of the best parts about the software-as-a-service business model (and a reason why they trade at high valuation multiples) is that customers typically spend more on a company’s products and services over time.

Snowflake’s net revenue retention rate, a key performance metric measuring how much money existing customers from a year ago are spending today, was 125% in Q3. This means Snowflake would’ve grown its revenue by 25% even if it didn’t win any new customers over the last 12 months.

Snowflake has a good net retention rate, proving that customers are satisfied with its software and getting more value from it over time, which is always great to see.

For software companies like Snowflake, gross profit tells us how much money remains after paying for the base cost of products and services (typically servers, licenses, and certain personnel). These costs are usually low as a percentage of revenue, explaining why software is more lucrative than other sectors.

Snowflake’s gross margin is worse than the software industry average, giving it less room than its competitors to hire new talent that can expand its products and services. As you can see below, it averaged a 67.1% gross margin over the last year. That means Snowflake paid its providers a lot of money ($32.93 for every $100 in revenue) to run its business.

The market not only cares about gross margin levels but also how they change over time because expansion creates firepower for profitability and free cash generation. Snowflake has seen gross margins decline by 0 percentage points over the last 2 year, which is slightly worse than average for software.

Snowflake’s gross profit margin came in at 67.8% this quarter, marking a 1 percentage point increase from 66.8% in the same quarter last year. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting its input costs have been stable and it isn’t under pressure to lower prices.

Snowflake’s expensive cost structure has contributed to an average operating margin of negative 34.3% over the last year. This happened because the company spent loads of money to capture market share. As seen in its fast revenue growth, the aggressive strategy has paid off so far, and Wall Street’s estimates suggest the party will continue. We tend to agree and believe the business has a good chance of reaching profitability upon scale.

Over the last two years, Snowflake’s expanding sales gave it operating leverage as its margin rose by 5.1 percentage points. Still, it will take much more for the company to reach long-term profitability.

Snowflake’s operating margin was negative 27.2% this quarter.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Snowflake has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 17.6% over the last year, slightly better than the broader software sector.

Snowflake’s free cash flow clocked in at $113.6 million in Q3, equivalent to a 9.4% margin. This result was good as its margin was 1.1 percentage points higher than in the same quarter last year, but we note it was lower than its one-year cash profitability. Nevertheless, we wouldn’t read too much into a single quarter because investment needs can be seasonal, causing short-term swings. Long-term trends carry greater meaning.

Over the next year, analysts predict Snowflake’s cash conversion will improve. Their consensus estimates imply its free cash flow margin of 17.6% for the last 12 months will increase to 25.3%, it options for capital deployment (investments, share buybacks, etc.).

Businesses that maintain a cash surplus face reduced bankruptcy risk.

Snowflake is a well-capitalized company with $3.35 billion of cash and $2.69 billion of debt on its balance sheet. This $667.5 million net cash position gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

It was encouraging to see Snowflake beat analysts’ revenue expectations this quarter. Overall, this print had some key positives. The market seemed to be hoping for more, and the stock traded down 8.5% to $244.02 immediately after reporting.

Updated: December 4, 2025 at 9:13 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Snowflake.

There are multiple reasons why we think Snowflake is an amazing business. For starters, its revenue growth was exceptional over the last five years. And while its operating margins reveal poor profitability compared to other software companies, its customers use its software frequently and increase their spending every year. On top of that, Snowflake’s efficient sales strategy leads to fast integrations.

Snowflake’s price-to-sales ratio based on the next 12 months is 16.5x. You get what you pay for, and in this particular situation, Snowflake’s higher valuation multiple is justified because its fundamentals shine bright. We think it deserves a spot in your portfolio.

Wall Street analysts have a consensus one-year price target of $281.03 on the company (compared to the current share price of $234.50), implying they see 19.8% upside in buying Snowflake in the short term.