Investors can be forgiven for not knowing what to make of Snowflake (SNOW 1.61%). The stock fell over the last year as several issues came to light.
It dropped from its 52-week high following the sudden resignation of CEO Frank Slootman, its longtime leader. He was replaced by Sridhar Ramaswamy, who came to Snowflake last year when it acquired internet search company Neeva, the enterprise he founded. Additionally, growth rates slowed, and the company suffered a security breach in April.
Such challenges could lead to further declines for Snowflake stock over the next 12 months. However, it has recently bounced off its 52-week low, possibly leading investors to question whether it can recover over the next year.
NYSE: SNOW
Key Data Points
The state of Snowflake
Snowflake is a data cloud company that competes with the top cloud companies. But its ability to operate in any cloud ecosystem gives it a competitive advantage.
Moreover, customers pay Snowflake based on the amount of usage, a business model that's advantageous to investors. It reported net revenue retention in the first quarter of fiscal 2025 (ended April 30) of 128%. This means that the average customer spent 28% more on the platform than at the same time last year.
The company also works with artificial intelligence (AI), helping to run AI and machine-learning workloads and incorporate generative AI in its processes. For all of the concerns about elevating Ramaswamy to the CEO position, his expertise will likely help add cutting-edge search capabilities to Snowflake's data cloud.
However, Slootman's departure from Snowflake appeared to rattle investors. Furthermore, in April, the product suffered its aforementioned data breach, and some cybersecurity experts said that this may be the largest data breach in the industry's history. With privately held Databricks becoming an increasingly significant competitive threat, this could bring challenges for the data cloud company.
Snowflake's financials
The financials have also shown signs of these challenges. Revenue in fiscal Q1 was $829 million, 33% higher than year-ago levels. Still, revenue growth is in a downtrend as company projections estimate it will slow to 24% for the upcoming fiscal year, falling from its 36% increase in fiscal 2024.
GAAP losses for fiscal Q1 were $317 million, up from $226 million in the year-ago quarter. Still, investors should note that Snowflake would have turned profitable if not for $332 million in stock-based compensation, a non-cash expense. Hence, its free cash flow, which also came in at $332 million in Q1, shows it's less dependent on outside funding than its losses might indicate.
Snowflake's valuation has become more attractive in the last few months. Before recent issues came to light, its investors routinely saw price-to-sales (P/S) ratios above 20. Still, the lower stock price has taken this sales multiple down to 15, a record low for Snowflake and a level more comparable with other high-flying growth stocks.
That comparative discount may put more investors at ease, considering that the company estimates the size of the addressable market will reach $342 billion by 2028. That factor alone could bode well for Snowflake, despite the added struggles.
Snowflake in one year
Given the business conditions, Snowflake could easily become a market-beating investment over the next year. Admittedly, the sudden CEO change and the data breach concern many of the company's shareholders. With revenue growth rates falling, investors may question the optimism surrounding Snowflake.
Nonetheless, making Ramaswamy the CEO could pay off in the long term due to his experience with AI and search. The 15 P/S ratio could draw in some investors who previously thought Snowflake was too expensive. Considering the massive growth expected for the industry, it may be a good time for investors to start adding shares.
