What happened
Shares of cloud-based data software company Snowflake (SNOW -1.00%) sank on Thursday after the company announced financial results for the fiscal first quarter of 2024 and lowered its forward guidance. As of 9:50 a.m. ET, Snowflake stock was down 16% and falling.
So what
In Q1, which ended in April, Snowflake generated product revenue of $590 million, up 50% year over year. This beat Wall Street's expectations and was ahead of management's own guidance as well.
However, Snowflake's management noticed slowing growth after Easter, which led to a slower-than-expected April. And on the conference call to discuss Q1 results, CFO Mike Scarpelli said, "It is challenging to identify a single cause of the consumption slowdown between Easter and today." This almost sounds like management isn't quite sure why business is slowing down, which did little to reassure the market today.
Now what
In light of April's slowdown, Snowflake's management lowered its full-year revenue guidance. For fiscal 2024, it had guided for 40% growth for product revenue (which accounts for roughly 95% of total revenue). However, now management is guiding for just 34% year-over-year growth, which is a substantial reduction.
Snowflake's management quickly reiterated its long-term product revenue guidance of $10 billion in fiscal 2029. However, there's something investors should be aware of.
With Snowflake's new guidance, it expects full-year fiscal 2024 revenue of $2.6 billion. To achieve $10 billion by fiscal 2029, the company needs to grow revenue at a 31% compound annual growth rate. Guiding for just 34% growth this fiscal year, Snowflake's growth can't slow much more without calling its longer-term goals into question.
Until Snowflake's growth rate stabilizes or reaccelerates, it may be hard for the market to have more confidence in this growth stock's ability to outperform the stock market average from here.
