Why shares of Snowflake plummeted as much as 30%

Posted: 3 March 2022 5:14 pm
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Slowing revenue growth sent the stock tumbling, but analysts remain bullish. Here’s why it could be a buy now.

Shares of cloud-based data platform Snowflake (SNOW) plunged nearly 30% in after-hours trading Wednesday after the company reported a pullback in product revenue growth, Snowflake’s biggest revenue stream.
The stock recovered slightly during the early hours of Thursday’s trading session, before fading lower during the day. Snowflake stock was trading at $222 at the time of this writing, down 17% since Wednesday’s close.
Here’s what happened and why the stock could still be worth a closer look when taking a long-term investment approach.

Why Snowflake stock is falling

After the close Wednesday, Snowflake reported fourth-quarter and fiscal full year 2022 earnings.
The company posted a quarterly loss of $132 million, or 42 cents per share, narrowing from a loss of 70 cents per share a year earlier. Analysts were expecting a loss of 47 cents per share.
Snowflake’s revenue in the fourth quarter climbed 101% year over year to $384 million. This beat analyst estimates of $306 million but slowed from the 110% growth in the previous quarter. The majority of Snowflake’s revenue comes from product revenue, which reflects the use of its platform and customers’ consumption of compute, storage and data transfer resources.
Snowflake said product revenue for the quarter was $360 million, representing 102% year-over-year growth. This also slowed from the 110% growth seen in the previous quarter.
“For Q4 product revenue, we anticipated holiday season headwinds,” said Snowflake CEO Mike Scarpelli during a call with investors Wednesday. “However, we did see a slower-than-expected return to normal consumption in January.”
Moreover, the company said it expects its product revenue growth to slow to 79% to 81% in the fiscal first quarter. For the 2023 fiscal year, Snowflake is anticipating 65% to 67% product revenue growth.

Thinking of buying shares of Snowflake?

Slowing revenue growth begs the question of whether investors should buy the pullback in Snowflake stock. It’s now trading at more than 45% below its November 2021 high of $405.

Despite the slowing product revenue growth, Snowflake appears to still be executing at a high level. The company said it had almost 6,000 customers at the end of the fourth quarter and 184 customers with trailing 12-month product revenue greater than $1 million. This group of high-value users is up more than 24% from the previous quarter and 139% year over year.
Snowflake also announced Wednesday that it was acquiring Streamlit — a startup that developed a popular open-source framework for building web apps — in a stock-and-cash deal for $800 million.
Separately, investors should remember that Snowflake is backed by billionaire investor Warren Buffet. While this doesn’t guarantee a stock’s success, it’s reassuring. Snowflake went public in September 2020, and Buffet snatched up $250 million worth of Snowflake stock at the IPO price, which came in at $120 per share. Buffet bought an additional 4.04 million shares from another stockholder at the debut price. Snowflake started trading on September 16, 2020, at $245 per share.
For a 5 year chart of the stock’s performance, see our dedicated guide to Snowflake stock.
In all, analysts see Snowflake stock as a buy right now. Among the 20 analysts covering the stock right now, 18 give it a Strong Buy or Buy, versus just 12 Holds and no Sells of any kind.
Analysts are also giving the stock an average price target of $377.65, which would be 71% higher than where the stock currently sits. Citigroup analyst Tyler Radke maintained his Buy rating on Thursday, giving the stock a $310 target.
Likewise, 5-star analyst Keith Weiss with Morgan Stanley reiterated his Buy rating with a $355 price target.
Many growth and technology stocks have undergone a massive selloff recently. Investors looking to pick one up on the cheap may want to consider Snowflake.
For more on growth stocks, read our guide to investing in information technology stocks.
At the time of publication, Matt Miczulski did not own shares of any equity mentioned in this story.

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