Snowflake May Have Upsides After Big Drop in Bear Market

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Snowflake

it publishes results on Wednesday, giving investors a fresh look after the company fell 67% since November in the tech bear market.

The cloud-based data storage software company is exactly the kind of stock the market has come to avoid: fast-growing, but with a high valuation and minimal profits.

Snowflake

(ticker: SNOW) went public in September 2020 at $120 a share, doubling on the first day of trading, and briefly topped $400 last fall. On Tuesday, just before the company’s April quarter earnings report, shares fell another 6% amid a tech selloff, to $130.63, nearly completing a round trip to the IPO price. .

The price has been cut in half since the company last reported earnings in early March. That report was not well received, due in part to softer-than-expected guidance. It was also partly a reflection of a policy change that affected the company’s unusual consumption-based revenue model, in which customers pay for the computing time they use, no more and no less.

As CEO Frank Slootman explained to Barron’s In an interview last quarter, Snowflake made the service cheaper, reducing the increments of time it sells from hours to seconds, allowing customers to be more efficient. “This is not philanthropy,” he said, saying the change will boost demand. “When you make something cheaper, people buy more.”

For the April quarter, Snowflake sees product revenue of $383 million to $388 million, an increase of 79% to 81% from a year ago, roughly flat sequentially. The company expects an operating margin for the quarter on a non-GAAP basis of negative 2%. Street’s consensus estimates call for total revenue of $412.8 million and non-GAAP earnings of one cent per share.

For the full year, Snowflake’s current forecast calls for product revenue of $1.88 billion to $1.9 billion, up 65% to 67%, with an operating margin of 1% and an adjusted free cash flow margin of 15%.

On Tuesday, Rosenblatt Securities analyst Blair Abernethy made a bold call to improve Snowflake shares ahead of earnings, raising his rating to Buy from Neutral, while cutting his price target to $255 from $325.

He says that the trend of digital transformation, the strong March quarter results of public cloud players

Amazon

(AMZN),

Microsoft

(MSFT) and

Alphabet

(GOOGL), and the company’s strong net income retention trends bode well for the quarter. It is projecting product revenue growth of 81%, at the top of the company’s target range, with non-GAAP EPS of 4 cents.

Abernethy also says Snowflake could boost its full-year guidance, “given the healthy IT spending environment and momentum in shifting workloads to the cloud.”

We’ll find out on Wednesday if he’s right.

Corrections and Extensions

Rosenblatt Securities analyst Blair Abernethy raised his rating on Snowflake to Buy from Neutral. An earlier version of this article incorrectly referred to him as Blair Anthony.

Email Eric J. Savitz at eric.savitz@barrons.com