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Why Snowflake Stock Plunged Today

By Joe Tenebruso - Mar 8, 2021 at 9:23PM

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The cloud-data leader's shares remain expensive, even by growth-stock standards.

What happened

Shares of Snowflake (SNOW 2.42%) fell 10.7% on Monday, extending the decline in the data-warehousing company's stock price since its fourth-quarter earnings report on Wednesday.

So what

Snowflake's fourth-quarter revenue surged 117% year over year to $190.5 million. The gains were fueled by strong customer growth and rising sales to existing clients.

The cloud data platform's total customer count increased 73% to 4,139 at the end of 2020. Meanwhile, Snowflake's net revenue retention rate -- which compares sales made to existing customers from one year to the next -- checked in at an impressive 168%.

A downwardly sloping stock chart

Snowflake's stock price sank on Monday. Image source: Getty Images.

Despite Snowflake's solid growth metrics, its shares are now down roughly 13% following its earnings release. Its $200 million operating loss in the fourth quarter likely didn't help. Sharply higher expenses led Snowflake's losses to more than double compared to the year-ago quarter.

Now what

Snowflake's losses should be viewed in context. The company is spending heavily to seize a growth opportunity it pegs at $14 billion for its core data warehousing service -- and more than $80 billion when factoring in the entire cloud data market.

Still, Snowflake's intriguing expansion prospects are arguably already reflected in its stock price. Its shares are currently trading for approximately 55 times its projected sales for fiscal 2022. That's not cheap.

Many high-priced growth stocks have seen their shares decline in recent weeks, as investors have rotated into value stocks. Snowflake's steep valuation has led its shares to be caught up in this selling, and it's possible that its stock could continue to decline until it falls to a price that investors find more compelling.

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Stocks Mentioned

Snowflake Inc. Stock Quote
Snowflake Inc.
$132.77 (2.42%) $3.14

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