Snowflake Q3 losses almost double, stock market flinches, then reckons: Nah, it's fine

Undereaction a sign of investor 'confidence/insanity' in the Snowflake sales engine, says analyst

Snowflake has reported its first financials since becoming a multi-billion dollar stock market darling, showing triple digit but slowing revenue growth in its Q3, and a near-doubling of losses. The response from Wall Street? Thumbs down.

For the quarter ended 31 October, the cloudy data warehouse platform provider - which set an IPO price of $33bn in September - said it turned over $159.62m in sales, up from $73.01m a year earlier. Pre-tax profit losses for the quarter mounted, coming in at $168.45m versus a loss before tax of $87.68m the previous year.

The share price declined by 8 per cent following the results rollout, but were back up to prior levels at the time of writing.

Frank Slootman, chairman and CEO at Snowflake, waxed lyrical on a conference call: “With the onslaught of digital transformation, data operations have become the beating heart of the modern enterprise. The pandemic has been more or less neutral to our business.

“Some businesses were negatively affected in terms of demand sentiment, but others stepped up their data strategy given the new complexities of the health crisis and economic effects. It bears repeating that Snowflake is not a SaaS business model. We're consumption company and our reported revenue has a direct relationship with the consumption of our platform.”

Customers that are using $1m or more worth of credits on an annual basis went up to 65 in Q3 versus 31 a year ago, said the company. Remaining performance obligations were up 240 per cent year-on-year to $927.9m.

The company’s customers buy credits and spend them when they use resources - these credits then show up on Snowflake’s revenue in the quarter that happens.

Snowflake, which started in 2012 as a cloud data warehouse slinger, reckons it has morphed into a cloud data platform provider, and recently rolled out a data marketplace, support for unstructured data and a data governance strategy. Its services are hosted on AWS and Microsoft public clouds.

“We have long needed to blend and join disparate data sets, that's why we built data warehouses in the first place. They were expensive, capacity constrained and required tons of data preparation and manipulation prior to use, only the largest most demanding data sets could afford these platforms. So they were never pervasive,” he said.

Of course Snowflake has changed that by “drastically scaling down to the smallest jobs and radically changing the economics with a highly elastic utility model.”

However, as “compelling” as Snowflake is to “turbo existing workloads”, he said “old habit die hard”. As such, “customers are still evaluating data platforms one workload at a time, basically limiting data operations to their silos”.

Indraneel Arampatta, analyst at Megabuyte, said: "Even though Snowflake is expecting to double revenue this quarter (let’s not forget the significance of that in the current market environment), it isn’t particularly surprising to see a negative share price reaction to this being soft when the shares trade almost 150x current year revenue!

"In that context, the share price reaction is actually relatively small, and highlights investor confidence (/insanity) in the Snowflake sales engine to continue delivering triple-digit growth rates as it leverages the massive interest in cloud data analytics."

For the next quarter, Snowflake forecast product revenues of between $162m and $167m, representing year-over-year growth between 97 and 103 per cent, which is a further slowdown from Q1 and the 121 per cent growth reported in Q4 of fiscal 2021.

Oh, and for those that might care about such things, Snowflake has a book coming out in December called Rise of the Data Cloud. That’ll be waiting in the sack for this correspondent’s children’s sack this Christmas. ®