Snowflake ( SNOW ) reported third-quarter earnings that met expectations while revenue topped Wall Street targets. The software maker’s guidance for product revenue came in below expectations. SNOW stock initially fell, then reversed course, as investors focused on better prospects for free cash flow.
“A big incremental positive was the rapidly improving FCF story at Snowflake,” Morgan Stanley analyst Keith Weiss said in a report. “For fiscal 2024, management expects 23% FCF margins – just 200 basis points away from its long-term target of 25%.”
The company reported results for the third quarter after the market closed on Wednesday. For full-year fiscal 2024, which starts with the April 2023 quarter, Snowflake said it expects product revenue growth of 47%, below consensus estimates of 52%.
Because Snowflake’s business model is consumption-based rather than subscription-based, bearish investors have raised concerns about a possible US recession dampening demand. Snowflake revenue is tied to how much data its customers crunch and store on cloud computing platforms.
For the quarter ended Oct. 31, Snowflake said it lost 63 cents per share, compared with a loss of 51 cents a year earlier. Analysts polled by FactSet expected Snowflake to report a loss of 63 cents per share.
The company reports results using generally accepted accounting principles, or GAAP. Snowflake does not break out adjusted earnings in its releases.
Third-quarter revenue rose 67% to $557 million, the software maker said. Analysts had forecast revenue of $539.4 million.
SNOW storage: Income prospects are lacking
The earnings report for Snowflake also said product revenue rose 67% to $522.8 million versus estimates of $505.2 million.
At UBS, analyst Karl Keirstead said in a report: “To be clear, 67% revenue growth in Q3 and guidance for 47% growth in fiscal 2024 is very impressive in this macro (economy) and certainly doesn’t speak to anything broken.” with Snowflake. That said, investor expectations were high going into this print.”
For the current quarter ending in January, Snowflake expects product revenue of $537.5 million at the midpoint of its outlook. Analysts had expected $549.2 million.
The SNOW share first fell on the results announcement. But Snowflake stock reversed up 7.8% to close at 154.04 on the stock market today.
Snowflake stock fell 57% for 2022 heading into the earnings report.
Snowflake sells data analysis and management tools that run on cloud computing platforms such as Amazon Web Services, part of Amazon.com (AMZN).
Amid the bear market in software growth stocks, the software stock has a relative strength rating of 17 out of a possible 99, according to IBD Stock Checkup.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on wireless 5G, artificial intelligence, cyber security and the cloud.
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