Week to date, shares of Snowflake (SNOW 6.19%) were down 18% through Thursday's market closing price, according to data provided by S&P Global Market Intelligence.
The share price fell sharply following the company's guidance for revenue headwinds in the near term that could spell weaker growth in the next few quarters.
NYSE: SNOW
Key Data Points
Snowflake is wrestling with revenue headwinds
Management noted that it is difficult to assess normalized consumption trends during the holidays, but product revenue still finished the year strong, up 33% year over year. New customers were driving much of the growth as companies are still migrating from legacy vendors.
The company's profitability is also moving in a positive direction, with adjusted operating margin ahead of management's expectations.
What seemed to send the stock down after the earnings report was management's comments about near-term consumption trends. Snowflake makes money based on customers' usage of resources on its data cloud platform, so Wall Street analysts pay special attention to management's comments about this area of the business. While consumption patterns have improved since the end of last year, management doesn't see a meaningful improvement happening in the current fiscal year.
Why buy Snowflake stock
The weak consumption trends mean that Snowflake's quarterly revenue growth may continue to slow. The consensus analyst estimate is calling for Snowflake to report revenue growth of 23% in the current fiscal year, and only improve to 24% next year.
Snowflake is still well positioned for long-term growth, as management noted with the strong demand from new customers in the quarter. But investors were hopeful that demand for artificial intelligence (AI)-powered services would drive stronger demand in the near term.
However, Snowflake's new CEO, Sridhar Ramaswamy, was previously the company's senior vice president of AI, which could benefit the company's future growth trajectory in the cloud market.
