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Snowflake's Wild Growth Continues: Q2 Earnings in 5 Must-See Metrics

By Daniel Sparks – Aug 27, 2021 at 7:31AM

Key Points

  • The growth stock trades at a pricey valuation for a good reason.
  • Revenue more than doubled in fiscal Q2.
  • Snowflake's scalable business model is translating to significant operating leverage.

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Customers are flocking to Snowflake -- and existing customers are rapidly increasing their spend with the data-warehouse specialist.

Shares of cloud-based data-warehouse specialist Snowflake (SNOW 1.16%) jumped on Thursday, rising about 6%. The growth stock's big gains follow the tech company's earnings report, which featured stunning top-line growth and massive margin improvement as the company's highly scalable business model flexes.

"Snowflake saw continued momentum in Q2 with triple-digit growth in product revenue, reflecting strength in customer consumption," said Snowflake CEO Frank Slootman in the company's fiscal second-quarter earnings release.

Here's a closer look at some of the must-see metrics from the quarter.

A person looking at charts on a laptop.

Image source: Getty Images.

1. Triple-digit revenue growth

Snowflake's revenue for its second quarter of fiscal 2022 more than doubled, rising 103% year over year to about $255 million. The impressive quarter's top-line performance means the company now boasts an annual revenue run rate in excess of $1 billion.

As one bullish analyst noted following the earnings release, Snowflake is on pace to achieve $1 billion in annual revenue faster than any software company in history. 

2. Best-in-class net revenue retention

Snowflake's net revenue retention rate, or a measure of spend from existing customers this year compared to last year, was 169% for the quarter. This was best in class for enterprise software companies. Further, this important customer spend retention rate was an acceleration from 168% in the prior quarter. 

3. Million-dollar customers more than doubled

Snowflake's customers generating more than $1 million in trailing-12-month revenue for the company more than doubled year over year, growing to 116%. 

But it wasn't just these huge customers that grew in quantity. Snowflake saw a 60% year-over-year jump in total customers, putting its total customer count at nearly 5,000. The number of Fortune 500 companies Snowflake services also rose nicely, growing 34% year over year to 212.

4. A widening gross profit margin

Capturing the scalability of Snowflake's business, the company's non-GAAP (adjusted) gross margin has been widening rapidly and has gone from 63% in fiscal 2020 to 73% for the first half of fiscal 2022. Management says margin-expansion drivers include cloud-agreement pricing, scale, discipline about when and how to offer discounts, and momentum with enterprise customers.

5. Operating leverage

With Snowflake's rapid top-line growth and a scalable business model, it's not surprising to learn that the company benefits from significant operating leverage. Snowflake's non-GAAP operating loss as a percentage of revenue has improved from negative 136% in fiscal 2019 to an expected negative 9% this year (based on management's guidance).

While Snowflake appears to be crushing it, investors should keep in mind that valuation matters. Investors are already paying a premium to buy into this growth story, pricing in plenty of big growth for years into the future. Snowflake currently has a market capitalization of $89 billion.

Daniel Sparks has no position in any of the stocks mentioned. His clients may own shares of the companies mentioned. The Motley Fool owns shares of and recommends Snowflake Inc. The Motley Fool has a disclosure policy.

Stocks Mentioned

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