Snowflake (SNOW +10.13%) recently reported results for the fourth quarter and full year of fiscal 2024, where quarterly revenue and adjusted earnings were above Wall Street's expectations. However, the cloud service provider's guidance for fiscal 2025 was lower than expectations, and that sent the stock down 24% following the earnings report.
A Citigroup analyst reduced their near-term price target from $290 to $240 to reflect the recent sell-off but maintained a buy rating on the shares. That figure was 35% above Monday's closing price.
NYSE: SNOW
Key Data Points
Why Snowflake stock is down
The company's guidance calls for product revenue to grow just 22% this year, which is well below the recent quarter's growth of 33%.
The lower growth seems to reflect inconsistent spending patterns across different industries in the cloud market, in addition to product enhancements that Snowflake is rolling out that will impact consumption on the platform in the near term. The reason to believe Snowflake is still in a good position for long-term success is the demand coming from larger companies, which grew 39% year over year in the fourth quarter.
Why buy Snowflake stock
The growth from larger customers reflects Snowflake's competitive advantage. Companies are continuing to migrate their data to the cloud to use with artificial intelligence, and Snowflake makes it easier for these companies to get quality data with its data-sharing marketplace.
Lower consumption patterns will be a headwind to growth this year. But one catalyst that could offset lower product revenue growth and benefit the stock is improving margins, which is driving strong growth in free cash flow.
Looking past the near-term headwinds, the demand trends favoring long-term growth in the cloud market are still playing to the strengths of Snowflake's business. The stock is already trading at a high valuation, so it may take a while to make it back to $240, but investors that can hold the stock for five years should be rewarded.
