Snowflake stock drops as some top customers cut usage

You might say its valuation is melting away

IPO darling Snowflake's share price took a beating in an already bearish market for tech stocks after filing weaker than expected financial guidance amid a slowdown in orders from some of its largest customers.

For its first quarter of fiscal 2023, ended April 30, Snowflake's revenue grew 85 percent year-on-year to $422.4 million. The company made an operating loss of $188.8 million, albeit down from $205.6 million a year ago.

Although surpassing revenue expectations, the cloud-based data warehousing business saw its valuation tumble 16 percent in extended trading on Wednesday. Its stock price dived from $133 apiece to $117 in after-hours trading, and today is cruising back at $127. That stumble arrived amid a general tech stock sell-off some observers said was overdue.

Mike Scarpelli, Snowflake's chief financial officer, told investors some customers were consuming less of its cloud services than the company anticipated "amid shifting economic circumstances we believe are unique to their businesses, most notably consumer-facing cloud companies."

The slowdown followed "much higher than expected consumption" last year, he said.

With an approach to cloud-based data warehousing separating storage and compute, Snowflake has seen spectacular growth in its value over the past five years. It went from $1.5 billion in 2018 to $120 billion shortly after its IPO in late 2020. Snowflake's market cap is currently about $40 billion.

However, it has had to cope with cloud hyperscalers each offering their own data warehouses based on similar technical approaches, while on-prem incumbents such as Teradata have made the leap to the cloud.

Snowflake's critics have pointed out that although its tech makes data warehousing and analytics accessible, it also makes costs difficult to predict.

"For some of our largest customers ($10 million), we've reset their forecast for the full year. We have a number of our top 10 customers that are outperforming our forecast, and we have a few that are below that," Scarpelli said. He added that there had been some "weakness in Europe" which were "not necessarily" down to macroeconomics. "I think it's probably an execution on our part as well, too," he said.

However, he added that "the last two and a half weeks" had seen quite high growth.

For the full fiscal year, Snowflake is forecasting turnover of around $1.9 billion, representing year-on-year growth of 65-67 percent. Analysts were expecting $2bn. ®