Shares of Snowflake (SNOW -0.91%) were trading down 2.9% as of 2:33 p.m. ET on Thursday after the company delivered results for its fiscal 2023 first quarter after the market closed Wednesday.
For the period, which ended April 30, the data cloud services provider's revenue beat analyst estimates, but its forecast for operating income in the near term was lower than expected. The shares traded as low as $112.10 before rebounding to above $134 at one point during Thursday's session.
Year to date, the stock is down by 62%, a decline that can be blamed on uncertainty over the economy and corporate spending, and also reflects the company's high valuation entering the year.
In fiscal Q1, revenue grew 84% year over year, which looks impressive at first glance. However, it certainly isn't going unnoticed on Wall Street that this was the first time since Snowflake's initial public offering in 2020 that revenue has increased by less than 100% in a quarter.
Ignoring the Street's expectations, Snowflake is performing well. Its total customer count grew by 39% year over year to 6.3 million. Its net dollar retention rate improved to 174% compared to 168% in the year-ago quarter. This metric reflects customer loyalty and increased spending on cloud services, where Snowflake offers data warehousing, data lakes, analytics, and more.
Another high point among the quarter's numbers was the continued improvement in free cash flow, which came to $172 million. This represented a margin of 41%, and shows a very profitable business taking shape.
Product revenue growth is expected to further decelerate to a range of 65% to 67% for the full year. Management is guiding for a negative operating margin of 2% for Snowflake's fiscal second quarter. Wall Street was looking for a better profit outlook. For the year, management is guiding for a 1% operating margin, while the adjusted free cash flow margin should be 16%.
In light of the steep deceleration in revenue growth that is expected, investors should be careful about buying Snowflake on the dip, as the shares still look expensive, even after their fall so far in 2022.