Shares of data company Snowflake (SNOW -0.10%) popped on Thursday after the company reported financial results for its fiscal fourth quarter of 2025. The quarter ended in January and showcased better-than-expected growth. And that's why Snowflake stock was up about 10% at 9:40 a.m. ET.
Some great trends for Snowflake's business
Snowflake's management had guided for Q4 product revenue of $906 million to $911 million. But the business generated product revenue of $943 million, which significantly outpaced that forecast. This is particularly encouraging because Snowflake has a usage-based business model. Therefore, the higher-than-expected revenue points to an uptick in usage.
Snowflake CFO Mike Scarpelli, who plans to retire as soon as a replacement is found, celebrated the revenue surprise by saying, "During the quarter, several large customers ran out of capacity before their contract end date as their revenue outpaced their contracted bookings." In other words, its customers signed spending contracts based on their expected needs (bookings) but it turns out that they're using Snowflake's platform more than expected.
The upside for Snowflake is that as its customers sign new contracts, spending commitments appear to be increasing. For fiscal 2025, Snowflake's product revenue grew by 30%. But its Q4 remaining performance obligations were $6.9 billion, up 33% year over year. In short, there's clear momentum with Snowflake's business and that's why the stock is approaching 52-week highs.
Is Snowflake being modest with its guidance?
Momentum is on Snowflake's side but management does expect a material slowdown in its growth rate in fiscal 2026, which started in February. The company is guiding for full-year product revenue of almost $4.3 billion, which represents a 24% year-over-year increase.
That's not a great growth rate necessarily given the lofty valuation of Snowflake stock. That said, investors should keep in mind that management originally only guided for 22% growth in fiscal 2025 before delivering growth of 30%. Therefore, given the current consumption trends, it's possible that Snowflake will deliver results above these expectations, which would almost certainly be a good thing for Snowflake stock.
