Snowflake: The More It Drops, The More I’ll Buy

Summary:

  • Snowflake’s shares fell 15% after the Q2 earnings report, with strong EPS and revenue beat, but a Q3 guidance that was perceived poorly by the market.
  • Snowflake generated good net retention and free cash flow in Q2 and had strong customer acquisition.
  • Snowflake guided for 26% FCF margins for FY 2024. Shares now trade at a 58% discount to the longer-term average P/S ratio.
  • Market overreaction to Snowflake’s earnings report presents a buying opportunity for investors interested in a fast-growing cloud/software company.

Big Data Structure. Blocks Concept

BlackJack3D

Shares of Snowflake (NYSE:SNOW) fell sharply after the cloud-focused software company reported earnings for its second fiscal quarter, which on one hand included EPS and top-line beats, but on the other revealed a Q3 guidance that was perceived as weak. Snowflake

$ in thousands

Q2’24

Q3’24

Q4’24

Q1’25

Q2’25

Y/Y Growth

Product Revenue

$640,209

$698,478

$738,090

$789,587

$829,250

30%

Professional Services

$33,809

$35,695

$36,609

$39,122

$39,573

17%

Total Revenue

$674,018

$734,173

$774,699

$828,709

$868,823

29%

Net Cash from Operating Activities

$83,191

$120,907

$344,580

$355,468

$69,865

-16%

Property, Plant & Equipment

($6,298)

($8,746)

($13,072)

($16,519)

($5,043)

-20%

Capitalized Software Development Costs

($7,874)

($9,889)

($7,029)

($7,404)

($5,992)

-24%

Free Cash Flow

$69,019

$102,272

$324,479

$331,545

$58,830

-15%

Free Cash Flow Margin

10%

14%

42%

40%

7%

3 PP


Analyst’s Disclosure: I/we have a beneficial long position in the shares of SNOW either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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