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Earnings Results: Snowflake stock drops after sales forecast that CFO admits is ‘conservative’

Shares of Snowflake Inc. fell more than 5% in after-hours trading Wednesday, when the data-software company’s executives announced quarterly revenue that topped expectations but came up shy with their fourth-quarter sales outlook.

Revenue increased to $557 million from $334 million in the third quarter, whereas analysts were modeling $540 million. Snowflake SNOW, +4.64% reported $523 million in product revenue, above the FactSet consensus, which was for $507 million.

Looking to the fiscal fourth quarter, Snowflake executives anticipate $535 million to $540 million in product revenue, while the FactSet consensus was for $553 million.

Chief Financial Officer Michael Scarpelli said on Snowflake’s earnings call that while the company saw weaker consumption patterns among some segments, including smaller businesses, during the past six weeks, “recent consumption patterns give us confidence that our largest and most strategic customers will continue to grow,” according to a transcript provided by Sentieo/AlphaSense.

Still, he added that “with the holidays approaching and uncertainty with how customers will operate, we believe taking a more conservative approach is responsible.” Snowflake remains “committed to generating meaningful free cash flow,” he noted.

Additionally, Scarpelli shared that based on current consumption trends, he expects to see product revenue growth of about 47% during fiscal 2024, just a tad short of analysts’ estimates. Analysts on average were forecasting fiscal-2023 product revenue of $1.92 billion and 2024 product sales of $2.91 billion, growth of roughly 51%.

That was actually better than some analysts had been expecting, with Evercore ISI analyst Kirk Materne writing ahead of the call that he expected expectations for revenue to be closer to 40% growth than 50%.

“Ironically, in an investing environment where margins and FCF is becoming more front and center, we believe the demonstrated leverage in the business is perhaps being overlooked in the initial reaction,” Materne wrote after the results were released but ahead of the call. “However, as we noted coming into the quarter, we believe shares are going to be trapped in a range until the revenue expectations for FY24 are level set closer to +40% (Street at +50%).”

The stock had been off more than 10% shortly after the release of the report but pared back those losses midway through the earnings call to roughly 5% to 6%.

Snowflake recorded a fiscal third-quarter net loss of $201 million, or 63 cents a share, compared with a loss of $155 million, or 51 cents a share, in the year-before quarter. Analysts tracked by FactSet were anticipating a 63-cent loss per share on a GAAP basis.

The company posted adjusted net income per share of 11 cents, compared with 3 cents a year before, while analysts were modeling 5 cents.

Snowflake disclosed that it had 7,292 total customers. The company reported $65 million in free-cash flow, while analysts had been expecting $2 million. As he thinks to the next fiscal year, Scarpelli expects that Snowflake will slow hiring but add more than 1,000 net new employees.

Shares of Snowflake have declined 58% over the past 12 months, as the S&P 500 SPX, +3.09% has dropped 11%.

See also: Okta promises profit and stock jumps

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