Snowflake share price falls after revenue forecasts dip below expectations

CEO Frank Slootman announces retirement as former data cloud rising star sees value sink

The value of cloud-based data warehouse vendor Snowflake plunged 24 percent in extended trading in the US last night after it announced lower-than-expected forecasts for product revenue as well as the departure of CEO Frank Slootman.

Overall results for the financial year 2024 showed product revenue climbing 38 percent to $2.67 billion while fourth-quarter revenue grew less than the year average at 33 percent year-on-year to reach $738.1 million). Product revenue makes up 95 percent of the total, well ahead of services and other revenue.

However, the company forecast product revenue between $745 million and $750 million for the current Q1 of its fiscal 2025, well below analysts' estimates of $765 million, according to LSEG data.

Slootman joined the Snowflake in 2019 and took it public the following year. Promoting an approach to data warehousing in the cloud based on horizontal scaling and a pay-as-you-go business models, the company is credited with lowing the barrier for users to start working on large-scale analytics, compared to buying chunky on-prem systems from "traditional" vendors who had helped define the enterprise data warehouse market such as Teradata, Oracle and IBM's Netezza.

Shortly after its IPO, Snowflake was valued at $120 billion, surpassing IBM's market capitalization at the time. Its current value stands at around $75 billion, a long way behind IBM, which is now valued at around $169.87 billion

Slootman will be replaced by Sridhar Ramaswamy, previously Snowflake's senior VP of AI and former Google senior vice president.

His challenge will be to square the circle between customers' management of their spending on the platform and investors' expectation of growth.

Customers have experienced unexpected bills with Snowflake, making enterprise users wary of shifting their workloads from incumbent platforms.

For example, in September 2021, Snowflake announced a push to capture the financial services markets. However, one financial services tech insider told The Register "traditional" systems like Teradata had "known finite capacity in terms of throughput, compute and storage, that is a guaranteed known cost." But the "unpredictability of the costs" was a big shock to people using Snowflake because "not only can they not explain this month's bill, they've no idea what the next month's bill will be."

For the past couple of years, Snowflake has been working on cost optimization in an effort to bring down any unexpected spikes. Poster-child customer Instacart, a grocery delivery platform and service, made payments to Snowflake of approximately $13 million, approximately $28 million, and approximately $51 million during the years ended December 31, 2020, 2021, and 2022, respectively, according to an SEC note from last summer. However, spend on Snowflake was expected at the time to fall to $15 million for the year ending December 31, 2023.

Snowflake argued the figures were misrepresented on social media and that the fall was not due to Instacart reducing its use of Snowflake products but instead resulted from "savings through optimization."

If the trend is replicated across Snowflake's enterprise customers, Ramaswamy might have to explain to investors what it will do to future revenue. ®

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