[ad_1]
Snowflake Inc. again cut its outlook for the year, and its stock is tanking. But did the company go far enough in resetting expectations?
That’s a major unknown coming out of Snowflake’s
SNOW,
latest earnings report, which brought a new forecast for $2.6 billion in product revenue, below the $2.705 billion outlook that management had most recently offered, which itself was a lowered target.
See more: Snowflake slashes forecast due to ‘unsettled demand,’ stock slumps after earnings
One problem for Snowflake in the current climate is that the company operates with a consumption-based business model, meaning that its corporate customers pay for the service based on their usage and have flexibility to adjust their spending in real time. Given macroeconomic uncertainties, the data-warehousing company is seeing customers pull back on what they’re using.
Snowflake’s stock was off 15% in morning trading Thursday.
“While we are not totally surprised by the cut as we were already below guidance based on our partner conversations, the big question going into the analyst day in June will be whether the updated guidance is the ‘final cut’ in this optimization cycle,” Evercore ISI analyst Kirk Materne wrote in a note to clients. “In talking with the company, long-term commitments have not changed but some larger customers running ahead of plan on consumption decided to cut back on storage to save money and combined with a softer April/May resulted in a more conservative guide.”
He wrote that he likes the company’s long-term position, but thinks the stock could be “somewhat range-bound” until Wall Street finds more confidence in the company’s outlook. Materne rated the name at outperform with a $190 target price.
Wedbush’s Taz Koujalgi also thought investors would ask whether Snowflake’s latest outlook was “safe,” though he seemed reasonably comfortable with the forecast.
“One of the key questions that investors will be asking is if the new guide is ‘de-risked’ enough,” he said. “Our analysis shows that the new guide implies consumption growth in back half of the year at half the levels as was seen in FQ1’24, and hence appears conservative.”
Koujalgi has a neutral rating and $144 price target on shares of Snowflake.
Bernstein analyst Mark Moerdler chimed in that Snowflake shares would likely “be in the penalty box” in light of a “massive slowdown” in the business and “persistent” cuts to guidance.
“We think SNOW now needs to deliver strong results against already lowered expectations, and gain investor confidence that growth can re-accelerate once the macro environment settles,” he wrote. “Any further downward revision could reset the story around the stock.”
Moerdler saw several concerning factors in Snowflake’s report, including “that growth is impacted not just by a slower uptake of new projects but shrinkage in existing workloads.” In his view, the trend “raises questions about the criticality of the workloads and durability of growth.”
Moerdler rated Snowflake’s stock at market perform, while cutting his price target to $148 from $157.
Sterling Auty of SVB MoffettNathanson, meanwhile, reiterated his upbeat long-term view.
“This is a cyclical issue not a competitive issue primarily, and Snowflake remains one of the best-positioned companies to capitalize on the growth in data,” Auty wrote. “Just these macro impacts shift the growth opportunity to the right near term, but we are still forecasting about the same outcome in FY29.”
He maintained an outperform rating on Snowflake’s stock but cut his price target to $218 from $240, citing “the timing of growth.”
[ad_2]
Source link
