Snowflake (SNOW 4.28%), the cloud data platform known for its scalable analytics services, released its Q2 FY2026 results on August 27, 2025. The main headline: it outpaced its earlier guidance with product revenue of $1.09 billion, Product revenue grew 32% year over year and Product revenue exceeded its forecast by nearly $51 million. The company also reported an 11% non-GAAP operating margin, while net revenue retention, a measure of customer stickiness and expansion, held steady at 125%. Despite this strong growth, management’s financial outlook, including guidance for FY2026, points to a slowdown in year-on-year product revenue expansion to 27%–25% and some margin pressure as investments and competitive dynamics take their toll. Overall, the quarter showed solid progress on recurring revenues and platform usage, but also signs of maturation as the company transitions from rapid scale-up to more measured, profitable growth.
| Metric | Q2 FY2026(ended July 31, 2025) | Q2 FY2025(ended July 31, 2024) | Y/Y Change |
|---|---|---|---|
| EPS (Non-GAAP) | $0.35 | $0.18 | 94.4 % |
| Revenue (GAAP) | $1.14 billion | $868.8 million | 31.8 % |
| Product Revenue | $1.09 billion | $829.3 million | 31.5 % |
| Operating Income (Non-GAAP) | $127.6 million | $43.7 million | 192.1 % |
| Product Gross Margin (Non-GAAP) | 76 % | 76 % | 0 % |
| Free Cash Flow (Non-GAAP) | $58.2 million | $58.8 million | -1.0 % |
Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q1 2026 earnings report.
Business Overview and Focus Areas
Snowflake (SNOW 4.28%) offers a cloud-native data platform. Its core business is providing organizations with services to store, manage, and analyze large volumes of data. The architecture separates compute and storage, which allows customers to scale as their needs evolve. This is the foundation of a model where users pay for what they actually consume, not a set contract amount.
Recently, it has focused on deepening its AI-driven platform features, tailoring products for specific industries, and expanding globally. Success is built on network effects: as more customers join and share data, the ecosystem value rises. Critical metrics include product revenue growth, net revenue retention, and continued platform innovation that keeps pace with major competitors. Strategic partnerships with other tech providers, such as integrations with data-sharing partners and large cloud infrastructure companies, also play a role in strengthening its market position.
Quarterly Developments and Key Metrics
Product revenue grew 32% year over year. That result topped management's guidance, which had implied growth of 25% over the prior year, reflecting strong customer engagement. Operating income on a non-GAAP basis rose to $127.6 million, an improvement from $43.7 million in the same period last year. The product gross margin (non-GAAP) was 76%, suggesting continued efficiency in delivering its core data analytics and storage services.
Net revenue retention, which measures how much existing customers are increasing their spending, stood at 125%. This is high for the software sector but has slowly declined from higher levels in previous years. Large customer counts continued to rise, with 654 customers generating over $1 million in product revenue in the trailing twelve months, up 30% from a year ago. However, new adoption among the largest enterprises appears to be slowing, with Global 2000 customers increased 5% over the prior year to 751 as of July 31, 2025.
Snowflake's platform innovations have centered on AI-related tools, including its Cortex AI features, which enable customers to implement artificial intelligence directly within their data environment. Management emphasized growing use, reporting that over 6,100 accounts are active with its AI tools each week. However, unlike a business where AI features are billed separately, Snowflake bundles these into the broader platform. As such, there was no specific financial impact broken out for its AI offerings.
The company continues to rely on its consumption-based business model, in which customers are billed for usage rather than through subscription contracts. This model provides revenue visibility as remaining performance obligations reached $6.9 billion, up 33% over a year before. Nonetheless, Free cash flow (non-GAAP) dipped slightly compared to a year ago -- costs that were expected to impact margins in this quarter due to the timing of its annual user conference.
Financial Guidance and Future Outlook
Management provided guidance for the next quarter and full fiscal year. Product revenue (GAAP) for Q3 FY2026 is expected to be between $1.125 billion and $1.13 billion, which would represent growth of 25–26% over the prior year. Full-year product revenue guidance was raised to $4.395 billion, or a 27% increase (GAAP). These numbers reinforce management’s expectation of continued growth, but also indicate that the rate of expansion is slowing as market penetration grows and competitive intensity remains high.
Key areas for investors to watch in the quarters ahead include the pace of product revenue growth, trends in net revenue retention, and developments in AI capabilities and their use by enterprise customers. The company remains exposed to competitive risk from larger cloud service providers and from the strategic directions of key partners. As of this release, it does not pay a dividend.
Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.
