Snowflake (SNOW 1.01%), a prominent data company, reported its second-quarter fiscal 2025 earnings on 2024-08-21.
The company disclosed that total revenue for the quarter was $868.8 million, marking a 29% increase compared to the same period last year. Product revenues of $829.3 million easily surpassed management's expectations of $805-$810 million. However, the quarter was not without its challenges as Snowflake continues to grapple with operating losses, reporting a GAAP operating loss of $355.3 million.
Overall, the second quarter portrayed strong revenue growth despite ongoing profitability concerns.
| Metric | Q2 FY2025 | Management's Guidance | Q2 FY2024 | Percentage Change (YoY) |
|---|---|---|---|---|
| Total Revenue | $868.8 million | – | $674.0 million | 29% |
| Product Revenue | $829.3 million | $805-$810 million | $640.2 million | 30% |
| Gross Profit (GAAP) | $580.7 million | – | $455.6 million | 27% |
| Operating Margin (non-GAAP) | 5% | 3% | 8% | (3 pp) |
Source: SEC filings. Expectations based on management's guidance, as provided in 2024-05-22 earnings report. PP = percentage points.
Overview of Snowflake
Snowflake operates a cloud-based data warehousing service known as the Data Cloud. Snowflake's platform supports various workloads, including data warehouse, data lake, and machine learning (AI/ML) applications, and secure data sharing. Central to Snowflake's business is its consumption-based revenue model, ensuring customers pay based only on their usage, making the Snowflake platform cost-effective and scalable.
Recently, Snowflake's focus has shifted towards enhancing its platform capabilities, particularly in AI. This strategy is aimed at driving deeper engagement among existing customers while attracting new high-value clients. Key success factors for the company include continued platform innovation, customer acquisition, and network effects that boost the ecosystem value.
Quarter Highlights
Snowflake had several notable achievements in Q2 FY2025:
1. Revenue Growth: Total revenue hit $868.8 million, marking a 29% YoY growth. Product revenue stood out at $829.3 million, significantly surpassing the upper end of management's guidance range of $805-$810 million. This showcased strong demand and high customer engagement.
2. Customer Metrics: The company now boasts 510 customers generating more than $1 million in trailing 12-month product revenue, a 28% increase compared to the previous year. Additionally, the number of Forbes Global 2000 customers rose to 736, reflecting a growth of 5% YoY. This strong customer base expansion underscores Snowflake's success in scaling existing relationships and attracting new business.
3. Net Revenue Retention and RPO: Snowflake maintained a robust of 127%, indicating increased consumption from its existing clients. Moreover, the remaining performance obligations (RPO) reached $5.2 billion, marking a 48% YoY growth and demonstrating strong future revenue visibility.
4. Gross Margin: Snowflake's GAAP product gross profit experienced a 27% increase YoY, reaching $593.7 million. The resulting margin was 72%, reflecting Snowflake's efficient revenue model and product demand.
5. Operating Losses: Despite strong revenue growth, the company reported a GAAP operating loss of $355.3 million, equating to a (41%) margin. The non-GAAP operating income was positive at $43.7 million with a 5% margin. Continued investment in platform development, particularly in AI innovations, contributed to the unadjusted losses.
Operational Achievements and Financial Highlights
During Q2 FY2025, Snowflake made significant strides in both financial metrics and operational initiatives:
1. Product Innovation: The company made substantial advances with its AI products, gaining traction in the early stages. This aligns with Snowflake's strategy to leverage AI/ML capabilities to provide more advanced analytics and insights to its users.
2. Operational Metrics: The net cash provided from operating activities was $69.9 million, with free cash flow reaching $58.8 million. Adjusted free cash flow was $66.0 million, showcasing the company's ability to generate cash despite ongoing operating losses.
3. Customer Expansion: Snowflake saw a 28% increase in the number of customers generating over $1 million in trailing 12-month revenue, totaling 510. The increase in high-value customers underscores Snowflake's strong market position and growing customer engagement.
4. Remaining Performance Obligations: increased to $5.2 billion, up 48% YoY. This metric is crucial as it reflects future revenue under existing contracts and indicates strong customer commitment and demand for Snowflake's services.
5. Operating Expenses: Operating expenses for the quarter totaled $936.0 million, up from $741.0 million the previous year. This increase is largely due to continued investments in research and development, particularly in AI and new product introductions.
Looking Ahead
Snowflake's management has provided forward guidance for Q3 and the full fiscal year 2025:
1. Q3 FY2025 Guidance: The company expects product revenue to be in the range of $850-$855 million, marking a 22% YoY growth. The non-GAAP operating margin is projected to be around 3%, denoting a cautious yet steady outlook.
2. Full-Year FY2025 Guidance: Updated product revenue guidance for FY2025 is now set at $3,356 million, representing a 26% YoY growth. Management also expects the non-GAAP product gross margin to be approximately 75%, with an adjusted free cash flow margin of 26%. This updated guidance reflects the company's balanced approach, accounting for growth opportunities and economic conditions.
Investors should watch Snowflake's continued focus on AI innovations, customer acquisition and retention rates, and the growth of high-value customer segments. The company’s ability to balance strong product revenue growth with improving profitability will be crucial in the quarters ahead.
