Shares of data cloud infrastructure provider Snowflake (SNOW 3.69%) were hammered on Thursday. The stock's beating came after the company's fiscal fourth-quarter earnings report, which featured better-than-expected revenue growth for the period but also included weaker-than-expected guidance for both the first quarter and the full year of fiscal 2025.
In addition, news that the tech company's accomplished CEO, Frank Slootman, retired likely played a role in spooking investors, too.
With the stock down sharply last week, is now a good time for investors to buy? Or are shares still too expensive to consider?
A strong fourth quarter
Snowflake's fiscal fourth quarter was actually quite good. Following a sustained period of rapidly decelerating revenue, Snowflake's year-over-year revenue growth of 32% for the fourth quarter was actually in line with the 32% growth it reported for the third quarter. In addition, fiscal fourth-quarter revenue easily exceeded management's guidance for 29% to 30% growth.
Another impressive metric was Snowflake's 41% year-over-year increase in remaining performance obligations (RPOs) during the fourth quarter. These bookings represent contracts to spend certain sums of money with the company over time by using its platform.
Since Snowflake operates a usage-based model, it won't recognize revenue from these contracts until each customer's consumption on the platform occurs. Nevertheless, the company's RPOs of $5.2 billion bode well for consumption on the platform. Snowflake's chief financial officer, Michael Scarpelli, said in the company's fiscal fourth-quarter earnings call that its 41% year-over-year increase in bookings for the quarter signals "an improving macro environment."
What's up with guidance?
Despite reporting fiscal fourth-quarter revenue that was above both management's guidance and analysts' expectations, Snowflake's guidance for both the fiscal first quarter and the full year of fiscal 2025 was underwhelming. Management said it expected product revenue, which typically accounts for about 95% of total revenue, to decelerate from 33% growth in the fourth quarter to somewhere in the range of 26% to 27% in the first quarter of 2025. For the full year, management said it expected fiscal 2025 product revenue growth of just 22%. Both of these figures were below analysts' expectations.
It's worth noting, however, that Scarpelli emphasized during the earnings call that its guidance for the year is based on more-conservative consumption forecasts. Specifically, it reflects the lower consumption patterns the company saw in 2024. "We've revised our model to look at more recent history rather than going back too far in history for forecasting consumption patterns," he said.
Patience could pay off
Considering this backdrop, investors might want to hold off on buying shares of this growth stock today.
The company's market capitalization, which is sitting above $60 billion at the time of this writing, remains hard to justify, given that Snowflake is still reporting significant net losses. The net loss for fiscal 2024 was about $838 million, worse than its $797 million loss in fiscal 2023.
Considering its high valuation, it might make sense for investors to be patient and wait for a potentially more significant sell-off in Snowflake shares. After all, the stock is extremely volatile, so it wouldn't be surprising if investors were presented with a better buying opportunity at some point in the future.
