Data cloud platform provider Snowflake (SNOW -0.57%) reported fiscal 2025 third-quarter results on Wednesday, Nov. 20, that topped analyst consensus estimates in several metrics. Product revenue for the quarter came in at $900.3 million, marking a 29% year-over-year increase. While demonstrating strong revenue performance, the company continues to face challenges in profitability due to high operating expenses, highlighted by a GAAP operating loss of $365.5 million.
Overall, investors were pleased with the report and even more pleased by the updated guidance for Q4 and the full year which also topped estimates.
| Metric | Q3 2025 | Analyst Estimate | Q3 2024 | Change (YOY) |
|---|---|---|---|---|
| Revenue | $942.1 million | $899 million | $734.2 million | 28% |
| Product revenue | $900.3 million | $848 million | $698.5 million | 29% |
| Adjusted operating income | $58.9 million | N/A | $71.9 million | (18%) |
| Adjusted EPS | $0.20 | $0.15 | $0.25 | (20%) |
| Net revenue retention rate | 127% | N/A | 135% | (8 pps) |
Source: Snowflake. Note: Analyst consensus estimates provided by FactSet. YOY = Year over year.
Snowflake: Company and Business Overview
Snowflake is a prominent player in the technology industry, offering a cloud-native Data Cloud platform that unifies data management and analytics. The platform allows for the consolidation of various data types, resulting in a comprehensive solution for data handling. Snowflake's unique architecture offers scalability and multi-cloud capabilities, crucial for addressing diverse workloads like data warehousing and artificial intelligence.
The company has been prioritizing innovation and the expansion of its platform's use cases, particularly focusing on areas like AI and machine learning (AI/ML). Snowflake's consumption-based business model aligns its revenue growth with the actual usage growth of its customers, boosting flexibility and scalability. Key metrics such as the net revenue retention rate underscore the effectiveness of its strategies in retaining and growing its customer base.
Quarter Highlights: Financial and Strategic Achievements
Snowflake product revenue growth during the quarter (which ended Oct. 31, 2024) highlighted strong demand among Snowflake’s expanding customer base, especially among customers contributing over $1 million in revenue. The net revenue retention rate of 127% indicates ongoing customer engagement, though the rate was down about 8 percentage points year over year.
On the operational front, Snowflake's adjusted operating income margin exceeded management expectations, suggesting improved control over operational costs. However, the company remains unprofitable on a GAAP basis, reporting a GAAP operating loss of $365.5 million. High operating expenses continue to weigh on profitability, largely due to strategic expansions spanning sales, marketing, and research and development (R&D).
Snowflake invested heavily in R&D, with expenditures in Q3 totaling $442 million, a 33% increase from the prior year. This reflects its focus on expanding its technological edge and supporting evolving customer needs. The company also launched new AI/ML products, reinforcing its commitment to technological innovation amidst increasing market demand.
Material financial activities included the conversion of $2.3 billion in convertible senior notes, showcasing strategic capital management while acknowledging potential dilution risks. Free cash flow was reported at $78.2 million, underlining stable cash generation, with an adjusted figure of $86.8 million.
Looking Ahead: Growth and Profitability Prospects
For the upcoming fourth quarter, Snowflake's management projects product revenue between $906 million and $911 million, suggesting 23% year-over-year growth. Analysts tracked by FactSet were modeling $882 million in Q4. Full-year product revenue guidance was raised to $3.43 billion, a 29% increase, underscoring the company's belief in continued strong demand for its platform.
Investors should monitor Snowflake's efforts to balance growth and profitability. The company's pathway to profitability remains dependent on optimizing operational efficiencies and managing costs. As Snowflake continues to focus on AI/ML and multi-cloud strategy advancements, it’s pivotal to observe how these initiatives affect both customer engagement and financial performance in the future.
